Why companies should care about children

There may be no more powerful policy to improve social mobility and a fair distribution of economic opportunities than the provision of high-quality childcare in the first few years of life. The most famous economist to have demonstrated this is the Nobel laureate James Heckman, with whom I hosted a Live Free Lunch conversation a while back (summarised in a video interview).

There is now much evidence that early childhood interventions can be done at low cost and with significant effects, though it matters that the provided care should be of high quality. The direct effect of good childcare on adult outcome is strong and positive, and more so for those from less privileged groups. Heckman and his collaborators have found real economic returns for society to investments in early-years childcare ranging from 7 per cent to 13 per cent a year in better skills development, higher employment and other benefits.

That is one reason why it helps with mobility. But because subsidised but non-universal childcare is less likely to be taken up by just those less privileged groups, near-universal coverage is important to realise this mobility potential.

In addition, the OECD has found that women’s labour mobility differs from men’s, in that child-rearing prevents them from having as many in-work career moves as men, and it is such job-to-job transitions (in obvious contrast with moves in and out of work) that boost career and salary progression. According to the OECD, “in-work transitions [increase] labour income by 7.8 per cent on average”, with stronger effects at younger ages. Public childcare provision should therefore increase the social mobility of women as well across income groups.

Given these numbers, businesses should be strong supporters of generous early-years childcare provision, as well as terms of employment that make it easy to combine childbirth and child-rearing with a smooth continuation of career progression. The effects of such policies — a better-skilled, more employable and more productive population, and less waste of the human potential of women and underprivileged groups — are of obvious long-term benefit to the economy. So out of pure enlightened self-interest, businesses should give their backing to good parental leave (including for fathers, because this can reduce career stigma for women of child-bearing age), support for childcare and flexibility around family needs.

There is one caveat to this enlightened self-interest. The more such benefits are provided by a company to its employees, the higher the risk that the employer is not the company that will reap the undoubted benefits — their own employees may end up working elsewhere, let alone their children. There is, in other words, a free-rider problem. But we have solutions to free-rider problems: they involve requiring everyone to contribute. Ambitious government policy to promote early-years childcare with broad coverage and of high quality, parental leave combined with presumptions to continued career progression, and employment terms that facilitate combining work with family life are strongly in the objective interest of businesses. If all companies were required to comply with or fund such policies, there would be no free-riding.

Precisely because of the free-rider problem, therefore, business should be an enthusiastic lobbyist for higher government-imposed labour standards in this area, as well as greater tax-funded spending on childcare. If that enthusiasm is lacking, it is presumably because, as a general rule, many businesses prefer lower taxes to higher, and fewer requirements on how to treat their employees (especially when those requirements impose a cost) than more.

If so, they are wrong. As the research cited above suggests, the taxes needed to pay for childcare are earned back many times in higher productivity for the economy as a whole, which benefits all companies. Requirements to give employees with children decent working conditions, moreover, are more similar to minimum wages than a payroll tax. The former is an inconvenience to business that genuinely benefits the worker; the latter imposes an inefficiency by inserting a “wedge” between what the employer pays and what the employee receives for a given amount of work. As we mentioned on Wednesday, the former type of “inconvenience” is likely to be a spur to productivity, not a drag.

Here then, is a case where supporting active government intervention is an eminently capitalist thing to do.

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Why companies should care about children

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