A new report by the United Kingdom (UK) Women’s Budget Group for the International Trade Union Confederation (ITUC) shows that sustained investment of public funds in childcare and eldercare services is worthwhile and that it is more effective in reducing public deficits and debt than austerity policies.
It would boost employment, earnings and economic growth as well as foster gender equality.
The report also indicates that investing 2 per cent of GDP in the caring industries would generate up to one million jobs in Italy, 1.5 million in the UK, two million in Germany and 13 million in the United States.
Despite years of austerity, severe cuts in public sector services and declining living standards for working people, economic growth prospects are worsening across major economies.
The recipe for recovery based on ‘quantitative easing’ – expanding the money supply available to investors – and cuts on public expenditure has failed to stimulate the economy, just as feminist economists and those on the political left predicted. This failure has even been recognised by the international institutions.
In the 2016 Interim Economic Outlook, Catherine Mann, chief economist at the Organisation for Economic Co-operation and Development (OECD) argues for “a greater use of fiscal (that is public expenditure) and pro-growth structural policies” given that governments can borrow for long periods at very low interest rates without jeopardising public finances.
Thus, the OECD argues that governments should create the missing demand by investing directly in the economy themselves – the same recipe that John Maynard Keynes proposed in response to the Great Depression of the 1930s.
Public investment not only creates jobs directly in the sector where the investment takes place (for example in building houses) but also generates knock-on or ‘multiplier’ effects on other sectors, as jobs will be created in the industries that supply the necessary raw materials and services for the initial investment.
In addition, because of this new employment, household incomes will expand, therefore boosting demand for all the goods and services that enter household consumption, such as food, clothing, and entertainment.
In this way, government investment expenditure will have an expansionary impact on overall demand, help lift economies out of recession and create jobs for working people – in short, enhancing overall wellbeing.
The advantage of this strategy is that, in time, the initial investment should pay for itself by generating benefits worth far more to society than it costs, hence justifying the initial increase in the public deficit.
The key question then becomes: where should this investment take place?
‘Infrastructure’ is generally taken to be physical infrastructure such as roads, bridges and telecommunications which is durable and yields returns into the future.
However, investment in the care sector also yields returns to the economy and society well into the future in the form of a better educated, healthier and better cared for population. This is why this form of expenditure is termed investment in ‘social infrastructure’.
Yet, this form of expenditure is rarely considered as a suitable form of investment when policymakers are looking for effective forms of employment generation in recessionary times.
In fact, the opposite has happened and public expenditure on education, health, childcare and social care services has been cut in many countries as part of their deficit reduction strategies.
While there is an obvious need for investment in physical infrastructure, the neglect of social infrastructure projects reflects a gender bias in economic thinking and may derive from the gender division of labour and employment segregation, with women being over represented in caring work and men over represented in construction.
Male unemployment is often seen to be a more urgent problem as men are assumed to be the breadwinners, despite the fact that, increasingly, many multiple or dual person households rely on more than one income.
This study shows that such bias is unwarranted.
For similar amounts of investment in the construction and caring industries, while both would generate increases in employment and growth, investment in the caring sector creates more jobs overall (even on a full time equivalent measure) with a higher proportion going to women.
Our findings are consistent across seven high income countries: Australia, Denmark, Germany, Italy, Japan, UK and USA, though the extent of difference varies between countries.
Investing public funding worth 2 per cent of GDP in care services would boost overall employment rates by between 2.4 percentage points in Italy (one million jobs) to 6.1 percentage points in the US (13 million jobs).
It would raise women’s employment rates by much more than that, given their greater concentration in the care industry: between 3.3 percentage points in Italy (660,000 jobs) and 8.2 points in the US (8.7 million jobs), with rises by more than 5 points in Japan (two million jobs), the UK (1.1 million jobs), Australia (400,000 jobs) and Germany (1.4 million jobs).
Men’s employment would rise more than women’s if the investment took place in construction industries. However, men’s employment would increase by almost as much with investment in care because of the larger overall employment effect.
For example, investing in care would provide 4.3 million more jobs for men in the US compared to 4.8 million if the investment is in construction industries. In Germany, men’s employment would increase by 650,000 from investing in care and by 750,000 from investing in construction.
It is not because of the differences in average wage levels that investment in care industries creates more jobs than equivalent amounts invested in construction industries. Wage levels are similar in both sectors in all countries but the US and the UK. Rather, it is because care industries are more labour intensive: they employ more people per unit of output produced, as they rely on fewer machines. They also generate more employment locally because care services require fewer imports than construction projects.
Besides creating employment and reducing the gap in employment rates between men and women, investment in social infrastructure also contributes to resolving the care deficit that arises because more women are in paid employment than ever before but men have not sufficiently increased the amount of domestic work or caring they do to make up the difference.
So while the turn towards infrastructure investment is a very welcome development and should help lift economies out of the recession – the more progressive, gender equitable and more inclusive solution would be to invest in social infrastructure as well.