A recent article by posted on the ABC News website laments the high cost of child
care to Australian parents, even though the provision of child care is subsidised by
the government (Webb 2017). Despite high user costs, child care workers across
Australia recently went on strike demanding pay-increases: they represent one of the
lowest-paid groups of workers in the country. Another recent article posted in The
Conversation describes how Australia compares to other countries in terms of access
to, use of and quality of early childhood education (Torii, Pilcher and Fox 2017).
While important improvements are observed in the proportion of children included
in pre-school education programs, Australia still lags behind other comparable
countries, particularly in terms of younger children (i.e. child-care). There is
therefore an argument that Australia must make further improvements in this area.
With this in mind, you are asked to write an essay discussing the market for child
care services in Australia, drawing on the concepts covered in the first 5 topics of the
unit. Address the following elements:
a) With the help of the diagram, explain the welfare implications of a subsidy on
child care services. What might be the economic justification for this subsidy?
b) If child care workers are successful in bargaining for higher wages, how this
would this affect the market for childcare services in Australia? For whom
will this have the largest impact? Is there a good economic argument behind
the claim that these workers are paid too little?
c) If Australia’s use of child-care services currently is too low compared to what
is considered optimal, what might be the economic logic behind this
argument? Are we observing market failure or government failure?
d) How might the government respond to the concerns raised with respect to
affordability, usage, and better pay for child-care workers? Who are the
winners and losers of such a policy?
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