Of course you would work for $4.40 per hour

It’s budget season in the great southern land (and no, that wouldn’t be New Zealand, not yet). The Australian Federal government is due to deliver its budget next Tuesday, and in line with recent fashion (no surprises for the markets, and a healthy dose of keeping the approval ratings high for as long as possible), it is doling out the budget announcements now, one at a time. Or leaking them strategically. Whatever. The effect is the same.

Over the last couple of days the Rudd government has made some announcements about childcare, seemingly with the aim of getting more women into work. Like other Western liberal democracies, they have noticed that there is a shortage of workers, and at the same time, there is a whole pool of potential workers, doing nothing except sitting around at home looking after children. If only those people would get out and do real work, we could solve a couple of problems at once. Ordinary families would have more money in hand, to meet rising household expenditure, and businesses would at last be able to get the employees they need.

Except there’s one huge fly in the ointment. (Or maybe one of those flocks of pesky little Australian flies which will hover around you and go with you wherever you go, like peculiar ornaments.) As it turns out, lots of women (and some men) choose not to go back into paid employment because by the time they have paid for childcare and taxes, then there is nothing left in their pockets. They end up working for virtually nothing.

The clever Treasury boffins in Australia have been working away on this problem (and believe me, all sarcasm aside, those people are indeed very smart and able), and they have come up with a critical point. For most women, there is very little point in increasing their days of work from two days a week to three days a week. The net gain is just seven dollars for the extra day of work.

So they have put their thinking caps on, and come up with a suite of measures that should help – increasing personal tax thresholds, increasing the low income tax offset, and raising the childcare tax rebate. The net effect of these? A mum who takes on that third day of work will now take home $23.

Treasury modelling obtained by The Sun-Herald shows a middle-income mum with two children in child care who moves from two to three days’ work a week gains just $7 for the extra effort. From July 1, she will keep more than triple that, with a take-home gain of $23.

Big sum, huh. That is of course, an after tax figure, so let’s gross it up to a possible pre-tax figure. If you work only three days a week, then even if you are in a high-powered job, chances are you will be in one of the lower tax brackets. So, to be on the safe side, I’m going to assume an average tax rate of 30% across that $23 (after tax). That means that the pre-tax income would be about $33, or for a 7.5 hour day, $4.40 per hour.

If the numbers are crunched another way, then a woman who takes on another three days work will take home $121, instead of $63. Converting that into pre-tax terms, using a 30% tax rate, and assuming 7.5 hours per day, I get a pay rate of $7.68 per hour.

How tempting is that? Would you really take on extra day’s work just for the sake of $4.40 per hour? Or an extra three days for $7.68?

No matter how you juggle the figures, and juggle household budgets, it turns out that for many mothers, working in paid employment just isn’t worth it. The marginal gain to a family’s budget simply doesn’t outweigh the intangible cost of working.

And that’s something that the Treasury boffins haven’t taken into account. Indeed, they can’t. Our ways of measuring gain and loss simply don’t accommodate non-monetary costs like lack of time with children, tired children who are in daycare for 8.5 hours a day (to allow 30 minutes commuting time each way for parents), stress managing the daily routines, stress coping with sick children, stress getting to and from work and childcare centres and the rest. Add to that increased household expenditure, for say, someone to clean the house, or for more pre-prepared or bought-in meals, because when both parents are working, there’s simply no time during the day to do all the work that’s required to keep a household ticking over. Alternatively, parents who have spent the week in paid employment spend their weekends doing housework, cooking meals, getting the supermarket shopping done, and get to spend very little time with their children, or indeed, very little time resting. For them, on Monday morning it’s back to work in order to rest.

From a policy point of view, none of this matters if having both parents in paid employment is simply a matter of people’s personal choices. But if the government and their advisors think that they will be able to tempt women into work, and thus solve some of Australia’s workforce woes, by the grand sum of $7.68 per hour (before tax), then may I suggest, respectfully, that they spend their time talking to the Mad Hatter. It’s likely to be just as effective as crunching more and more numbers. Or maybe they could talk to some real life parents, and try to find out what it is that would really make a difference.

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2 responses to “Of course you would work for $4.40 per hour

  1. It certainly isnt tempting me to go back to work…

  2. It seems that this issue adds yet another burden of guilt for mums – it’s not as simple as stay home versus working mum, in terms of what it does to the child (and I’m aware of some research that shows that if the mum is happy with the arrangement then that goes a long way to making the child happy, regardless of what is done). There’s also the financial maths you have written about. If you can’t earn enough in your job to cover the costs of childcare then often the default setting is that you stay at home, regardless of the other benefits to you (or your family) that a return to work might bring. Argh!