How can universal childcare unlock workforce productivity?

Childcare policy reforms could unlock significant gains in workforce participation and long-term productivity – but only if they’re designed effectively

Australia’s productivity is slipping – and no, working from home isn’t to blame. While there are several likely causes behind the slowdown, access to a universal early childhood education and care (ECEC) system could be one potential solution. 

Prime Minister Anthony Albanese previously pledged to deliver universal childcare back in 2022. Now, the new Albanese Government, backed by Education Minister Jason Clare and Early Childhood Education Minister Anne Aly, is advancing major ECEC reforms, driven by cost-of-living pressures and childcare shortages, especially in Aboriginal and Torres Strait Islander communities. 

Tackling Australia’s productivity and childcare challenges calls for a more nuanced approach and may require rethinking how we measure productivity beyond traditional metrics like GDP, says UNSW Sydney economist Professor Gigi Foster.

Speaking on the link between childcare and economic growth, she explains universal, high-quality early childhood education must be grounded in logic and long-term thinking to deliver real economic gains. Done right, she says it can boost children’s development and unlock workforce potential – especially for women. 

“When parents have access to affordable childcare that meets their needs, parents’ labour is liberated for other uses – for those parents who would rather contribute to society in ways other than caring for their young children full-time. However, it has proven hard to construct a government subsidy plan that doesn’t get rorted by childcare providers and also delivers consistently high-quality and accessibility of care,” adds Prof. Foster. 

What is the biggest challenge in childcare? 

From January 2026, a new Three-Day Guarantee will provide all families, regardless of employment status, with 72 hours of subsidised childcare per fortnight. This effectively removes the activity test, a move that aligns with the Productivity Commission’s recent recommendations. These reforms are set to benefit over 66,000 families, offering significant savings on childcare costs. They also include a 15% wage increase for educators, backed by a $3.6 billion investment, and an additional $1 billion is dedicated to expanding childcare services.  

Still, barriers persist, and many structural and financial limitations mean that access to quality care remains out of reach for many, especially in disadvantaged and remote areas. Could more be done to expand access to flexible, affordable childcare, and what would the flow-on effects be for productivity? 

Learn more: Slow gender gap progress puts focus on childcare support

Prof. Foster says that by enabling more parents, particularly women, to return to work and ensuring that children benefit from high-quality early learning and childcare, policy reform could deliver both immediate and long-term economic benefits. But it’s not as straightforward as rolling out a universal childcare policy. She says the reality of childcare reform is complex, with multiple layers and structural issues to consider. 

What is government intervention in childcare markets achieving? 

Specifically, Prof. Foster outlines three main benefits of a system where all Australian parents of young children have access to affordable, high-quality childcare: 

1. Freeing up parents' time for other pursuits: When parenting responsibilities are shared with paid or unpaid caregivers, parents (especially mothers) have more opportunities for professional fulfilment, career advancement and higher retirement savings.

2. Improved outcomes for children in difficult home environments: Access to quality early childhood education benefits children directly and contributes to Australia's future productivity by shaping stronger developmental foundations.

3. More and better jobs in childcare: Expanding high-quality childcare creates more employment opportunities in the sector, providing meaningful and fulfilling work for prospective childcare professionals. 

“When children from distressed family environments are exposed to higher-quality care, this brings long-run benefits for those children and for Australia as a whole,” she says.

Prof. Foster’s recent research highlights the importance of designing a childcare system that genuinely supports Australian families, particularly low-income households and those in regional Australia that can face ‘childcare deserts’.

Currently, Prof. Foster is also working on a report about the childcare sector for the Centre for Independent Studies, which is due to be published in the next few months. One of the recommendations Prof. Foster outlines in the report is that governments can boost productivity by “drastically reducing the regulatory burden” in areas where letting the market figure things out (through competition and innovation) would lead to better results – not just in relation to childcare, but in other areas of public policy as well. 

On childcare specifically, she writes: “Australia’s childcare sector is poised to continue to feature low accessibility and rising parent costs, constraining parents’ labour force supply decisions and stressing them financially, unless the market forces that are presently constricted by over-regulation on the supply side of the market are released in some way.”  

Her report highlights the particular benefit available from a less restrictive and more empowering approach to regulating the family daycare market, which would also provide parents with more childcare types to choose from. She also stresses the gains available from changing the system of quality assurance away from a top-down, “structural quality measurement” approach and towards a grassroots, qualitative approach based on direct parental input. 

Untapped workforce potential? 

Prof. Foster estimates that the largest gains to Australia would come from providing access to high-quality care for children from disadvantaged backgrounds, whose counterfactual care scenarios are poor. While gains through creating better work situations for carers and releasing parental labour to the paid labour market are there as well, she cautions against overstating these productivity gains. Subsidies may encourage more parents to enter the workforce, but some would return regardless, through informal care or flexible work arrangements.  

Learn more: How parental leave policies affect employers’ perceptions of working mothers

“It is very difficult to do construct a proper cost-benefit analysis of government spending on childcare because of the inherent difficulty of measuring the quality of care being provided and the difficulty of working out what the state of the world would look like in the counterfactual scenario in which no government support was provided,” she says.

She also challenges the notion that paid work is always more valuable than caregiving. “I am not convinced that the productivity effect from releasing parental labour via government childcare subsidies is that large. Mothers who would be highly productive in the labour market are often highly productive at other things too, such as caring for their children, an activity that will 'pay off' for Australia years later in the form of more productive, happier adults. 

“Also, some private provision of care would occur even without government intervention, plus grandmothers, aunties and other care options would still be around.” 

Care work is essential but invisible in economic measures, she says. Unpaid labour and care, often invisible in economic statistics, represent an enormous contribution, estimated to be equivalent to more than 40% of GDP in many countries, including Australia. “None of that is captured in GDP – caring for children, meals in the home, clean clothes, care of elderly people… It’s kind of ridiculous,” says Prof. Foster.

Good economic policy, she argues, should focus on human wellbeing, not just output. To do this, we need better ways to measure life satisfaction and how much time people actually spend on care work. 

Why policy design matters 

Despite widespread support, Prof. Foster says universal childcare remains a politically and logistically complex issue. Striking the right balance between quality, cost, and access is crucial – and in areas where care is scarce or not commercially viable, targeted subsidies can still offer strong returns.

Subscribe to BusinessThink for the latest research, analysis and insights from UNSW Business School

“My best guess is that done well, government subsidisation of childcare in at least some regions and for at least some types of families is likely to deliver positive net benefits because of the lack of commercial viability of childcare in some regions – particularly in remote or low-income regions –  and because of the poor counterfactual care scenarios for children from some families. This creates a high benefit for those children, and for Australia as a whole, of them being able to participate in high-quality care.” 

She warns that while universal childcare is a popular policy idea, good intentions alone won’t deliver results. “It sounds good: it sounds pro-woman, pro-child, pro-family, pro-business, and pro-Australia. Done right, it is all those things, but it is easy for politicians to offer sound bytes and not actually deliver those good things.”