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By Senior Economist Signe Hansen

The Economic Council of the Labour Movement (ECLM)

and Director Lars Andersen

The Economic Council of the Labour Movement (ECLM)
The demographic changes in the EU in the years to come mean that fewer children are being born
and more people are retiring, all resulting in less people in the labour force. One way to both
increase the employment rate and to promote gender equality is to enhance the public childcare
system. This policy brief presents a gendered investment plan that will draw Europe in the right
direction, create jobs, increase the female participation rate, and ensure that Europe will have a
quicker return to its historical growth pad as well as dealing with the demographic changes in the
EU. In the scenario we are investing in the childcare system, both improving the existing as well at
developing and extending the system. On top of that we stimulate the European economy with
government investments financed by taxes.

Economic Policy Brief, No.2 February 2014




Employment is still not picking up
The demographic changes in the EU in the years to come mean that fewer children are being born
and more people are retiring, all resulting in less people in the labour force. In that light, it is
necessary to bring more people into work, in order for Europe to maintain its growth potential in the
long run and regain momentum in growth. One way to both increase the employment rate and to
promote gender equality is to enhance the public childcare system.

On top of the demographical challenges that Europe face in the future, Europe is still struggling to
get out of the crisis. Today it is more than 5 years since the outbreak of the worst economic crises
since world war two, but the EU employment is still not back on its pre-crisis level (cf. figure 1.). The
gap between female and male employment is also seen from the figure.

Source: Eurostat.

Large austerity measures are still being undertaken around Europe, there are thus strong underlying
forces at play pulling employment down the coming years. If nothing is done politically it will take
many years before the growth rates in Europe are high enough to generate jobs.

In this paper we will present an alternative. An alternative that will not only show an alternative to
austerity but also an alternative that takes the future demographical challenges into account. A
gendered investment plan resulting in a recovery based on investing in childcare as well as in
creation growth in Europe in a way that focuses on female jobs

Female activity on the labour marked
The activity rates in Europe vary a lot, and the share of women who are active in the labour market is
very different between countries. Figure 2 shows the gender gap between male and female activity
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rates. In all Member States, the activity rate of men exceeds that of women. The gender gap
between male and female activity rates indicates the employment potential related with increasing
the female activity rate. In general the gender gaps in activity rates are smallest in the Nordic
countries and larger in the some southern European countries and some Central- and Eastern
European countries.

Source: Eurostat.

There are many reasons for the difference between male and female activity rate, but for the
younger generations of women the responsibilities for children is a mayor explanation. Figure 3
shows how activity rates and full-time/part-time rates vary with the number of children. The more
children and the younger they are the lower is the activity rate for women in the EU. Only 24 pct. of
the women with 3 children (where at least one of them is less than 6 years old) work full-time. In
general 1/3 of the women that are working, only work part-time. There is therefore a huge potential
both when I comes to getting more women in to the labour marked, as well as increasing the hours
worked by the women that are already active on the labour marked.

Source: Eurostat.

Figure 4 shows the female activity rate decomposed into full-time and part-time employment. As
seen from the figure there is a tendency that the countries with high activity rates also have a large
group of part-time workers, especially for European countries like Netherlands, Austria, Germany
and Belgium.

Source: Eurostat.




The need for childcare
Figure 5 show the enrolment rate of children under 3 years decomposed on how many hours per
week the children are spending in childcare. There are huge differences between countries. Denmark
shows out by having the far largest enrolment rate, combined with the fact that the majority exceeds
30 hours per week.

Source: Eurostat.

Public subsidized childcare increases the labour supply of women (mothers) significantly, because
when parents can send their children in childcare they can both be active in the labour market. Of
course increased childcare implies that more kindergarten teachers and other childcare personnel
must be hired, but if a kindergarten teacher can take care of children from four parents, then hiring
one kindergarten teacher will free four people for employment. The parents who work instead of
taking care of their children, can make use of their education and will thereby be more productive,
which will benefit society. Public subsidized childcare will not only increase activity rate but also
cause greater specialization and in this way productivity gains.

And there do seem to be a correlation between the enrolment rate in childcare and female activity
rate for women that we presume could have small children. Figure 6 compares the female activity
rate with the proportion of children in childcare in a number of European countries. The overall
picture is that there seem to be a strong correlation between the share of children in childcare and
the female activity rate. There is also a tendency that the Nordic countries have both high enrolment
rates and high activity rates, while especially the Central- and Eastern European countries have both
low enrolment rates and low activity rates.




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Source: Eurostat

The effect on labour supply given increased public spending on childcare depends on a number of
things. As an example the calculation is made for Danish numbers in table 1.

Source: Updated version of table 2.3.2, Bureau 2000 Brn i kroner og rer.

The first row (a) shows the number of fulltime employed per 100 children in different day care offers.
This number will vary according to the standard and type of day care offer. The second row (b) shows
the estimated resources used for building institutions (which are zero in the case of family day care)
and for educating and training staff. These two (c) add up to the total resources used for supplying
additional day care.

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As some mothers have more than one child the number of mothers released will be smaller than 100
(d). As the fertility rate in Denmark is among the largest in Europe most countries will have an effect
of numbers of mothers that is larger than Denmark. Not all mothers having their children in day care
will be active on the labour market. The (e) row indicates the participation rate of women aged 25 to
54 (84 percent) times the number of mothers. Some countries (e.g. Sweden) in principle only offer
day care to mothers who are active on the labour market. In that case the participation effect will be
near 100 percent.

The last row shows the net gain on women participation rates by offering an additional 100 day care
vacancies. The number varies according to the kind of offer given but is in all circumstances positive
and significant. The calculation illustrates that there are significant effects of public spending on
childcare.

A gendered investment plan
In the following we will look at the effects from a gendered investment plan. One way to make it
more likely for women to participate in the labour force is to develop and expand the public
childcare system. In the scenario we are investing in the childcare system, both improving the
existing as well at developing and extending the system. On top of that we stimulate the European
economy with government investments financed by taxes. Box 1 explains the assumptions behind
the calculation in detail.

The gendered alternative scenario is calculated on the international macroeconomic model
HEIMDAL, for more information about the HEIMDAL model see HEIMDAL Model description and
properties by Hansen and Bjrsted 2012.

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The gendered scenario is based on two pillars, firstly investments in childcare in order to increase
womens labour supply, secondly a more traditional investment plan with a special focus on female
employment, in order to increase the demand for female labour. The countries participating in the
strategy are the Southern Eurozone countries, the western Eurozone countries and the UK.

In the model calculations it is assumed that the framework conditions for women to participate in
the labor market is improved. That means investing heavily in expanding and improving childcare
facilities in Europe, with a special focus on southern European countries as the potential for
increasing the female participation rate is largest here. It is assumed that the improvement in child-
care will increase public employment by 0,5 percent gradually towards 2018 (0,75 for the southern
Eurozone countries), and the improved framework will gradually increase the labour force during the
next 5 years, resulting in a 1 percent increase in 2018. At the same time the countries are increasing
government investments, starting with 1 pct./GDP in 2014 gradually increasing to 1,5 percent in
2018. Southern Eurozone countries are investing 1.5 pct./GDP in 2014 gradually increasing to 2.5
pct./GDP in 2018.

Taxes are being increased in a balanced way so that the total effect on the public budget equals zero.
Whereas the investments are spread so that the investment level is increased more in the south
Eurozone than in the rest of the countries that are part of the plan, the increase in taxes is spread
evenly among the countries that are part of the plan. The split between female and male
employment is in line with the split found in the CAM (Cambridge-Alphametrics Model)1. The figures
below illustrate the effects on the European economy from a gendered investment plan, resulting in
a recovery based on investing in childcare as well as in creation growth in Europe in a way that
focuses on female jobs.

Figure 7A and 7B shows the effect on EU-27 and the Eurozone GDP. When improving childcare and
increasing investments, GDP will gradually increase and in 2018 the GDP level in EU-27 will 2.4
percentage higher than without the investment plan. The GDP in the Eurozone will increase even
more and will be elevated by 2.6 percent in 2018, the larger effect on the Eurozone is due to the fact
that it is mainly Eurozone countries that participate in the gendered investment plan.

1 For more information see Bargawi and Cozzi (2014), FEPS-SOAS Policy Brief No.1 2014.




Source: ECLM based on calculations on HEIMDAL.

Figure 8.A and 8.B shows the effect on the European employment. The massive investment in
childcare as well as other investment will boost employment in Europe. The first year, the gendered
investment plan will created close to 1.4 million new jobs in Europe, of which there is an increase in
female employment of 725.000 jobs and an increase in male employment of 645.000 jobs, meaning
that the increase in female employment is 12 percent larger than the increase in male employment
the first year. As the childcare system is improved and expanded all over Europe, more females will
supply their labour and more female jobs will be created and the rate between new female jobs and
new male jobs will increase. In 2018 the gendered investment plan will create 4.8 million jobs in EU-
27, of which more than 2.7 million jobs will be female jobs and 2.1 million jobs will be occupied by
males. In 2018 the gendered investment plan will have created 30 pct. more female jobs than male
jobs, showing how targeting investments at childcare have added a significantly larger share of
female jobs compared to an investment plan without a gendered approach. From figure 8.A it is seen
how the gap between the two pillars are widening over time.

Source: ECLM based on calculations on HEIMDAL.

In figure 9.A-9.D the employment effect is seen in a number of regions and in the UK. Also in these
figures it is seen how the spread between male and female job creation is widening over time. In the
Eurozone the gendered investment plan will have created 3.5 million jobs in 2018, where the
majority of the jobs (in absolute numbers) will be located in the west Eurozone, in relative term the
job creation in the west Eurozone and in the south Eurozone is about the same. In the scenario we
have intensified the investments in the south Eurozone. The reason why the job creation anyhow (in
relative terms) is the same in the west Eurozone and in the south Eurozone is due to the underlying
multipliers and the openness in the economies. The total employment effect is the sum of the
domestic employment effect (from the investments within the country) as well as the spill-over
effect (the effect from an increase in demand from other European countries). Because of the larger
spill-over effects in the west Eurozone compared to the south Eurozone, they experience the same
relative increase in employment even though the investment level is increased more in the south
Eurozone.


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Source: ECLM based on calculations on HEIMDAL.

Table 2 shows the effect on GDP and employment in a number of countries and regions. In the
period from 2014 and 2018 GDP in EU-27 will grow by 2.4 percent more than in the scenario where
nothing is done. In employment terms the total effect on EU-27 will be more than 4.8 million extra
employed in 2014 than would have been otherwise. It is also seen how the GDP multiplier varies
between countries depending on their openness and spill-over between countries. In the German
export oriented economy GDP will increase by 3 pct. over the 5 year period.

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Source: ECLM based on calculations on HEIMDAL.

The gendered investment plan will draw Europe in the right direction, create jobs, increase the
female participation rate and promote gender equality, ensure that Europe will have a quicker return
to its historical growth pad as well as dealing with the demographic changes in the EU.

As explained earlier some of the positive effects in this scenario are due to the fact that some of the
European countries make a simultaneously effort. This means that there are positive spill over
effects on the individual country which enlarge the effects on employment and wealth.

Table 3 gives examples of spill-over effects on countries that are not part of the gendered investment
plan. Sweden for example will experience a GDP increase of 1.8 percent, and 60.000 jobs will be
created in the period from 2014-2018 due to the gendered investment plan. In this scenario it is only
the countries that are part of the gendered investment plan that are part of the financing, but with
the spill-over effects in mind, one could argue that it would only be fair if all European countries, in
some way, were part of the financing as all countries to some extend are benefitting from the plan.

Source: ECLM based on calculations on HEIMDAL.

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As shown above significant improvements can be made on the labour market when implementing
the gendered investment plan and that even though e.g. increasing womens participation rate also
mean a higher unemployment in the short run until all the women have gained a foothold on the
labour market. If active labour market policies are implemented, in order to help the women to get
jobs and to be quickly integrated on the labour market, then female employment can be expected to
increase even more, than assumed in the alternative scenario above.

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