ECONOMICS Work and Leisure commentary - some women returning to child care duties

A simple economic narrative as reported in The Telegraph: there has been a 10% drop in high income earning women using child care in preference for staying at home with children.

This was prompted by the elimination of child care subsidies by the UK government for parents who fall into the 40% tax bracket. However, the number of children being placed in child care has risen as the the government has been encouraging lower earners to put their kids into institutional care instead of keeping them in the family.

Nonetheless, 6.1 million children are put into child care facilities, whose costs have fallen in real terms.

Okay, there are a few strands to pick up here using basic economics.

Firstly, there is a straight forward disincentive to put children into child care when the subsidy has been removed. This applies to only those families in which one or both parents pay over 40% tax on their pay. For the student of economics this means showing a drop in demand for child care either on a single graph or on two separate graphs - one for parents whose income attracts 40% tax and one for parents whose income remains below 40% tax. A shift in demand to the left would then suffice.

However, the demand for childcare has been steadily rising over time - which analysts note is stemming mainly from the relatively poorer but larger section of the community who pay less than 40% tax. So on the second diagram, you would show an shift in demand to the right.

In both cases, you would note that the change in demand has - at this stage in the analysis - been produced by the use of subsidy in the case of demand growth and the dropping of the subsidy in the case of demand falling.

But there' s more to the story. The survey indicates that it is not so much the price effect that is encouraging 40% + tax paying mothers to relinquish work in favour of looking after their own children but a change in preferences. That is, from basic economic concepts, the tastes and fashions for childcare have changed in this relatively wealthier market. There may be many reasons for this of course (such as studies showing children in child care to be more stressed than those who remain in the family environment) - but we can summarise it as a change in taste. On the diagram, demand thus drops to the left.

Two effective reasons therefore combine: a drop in the subsidy provided to parents to put their children into institutional care and a change in preferences in favour of home care: demand shifts to the right.

On the supply side, the article notes that costs for providing facilities have fallen. This would shift the supply curve to the right, all things being equal. Institutionally provided care has been seen to stabilise after years of increases, the articles note; however, the cost of  nannying services has also jumped according to the BBC. This could mean that some of the 40% tax paying mothers/parents are turning to one-to-one help for their parenting instead of using institutional services. That is, nannying is acting as a substitute - its demand curve shifts to the right for nannies as parents move out of buying childcare places in nurseries etc.

So while some of the mothers in the higher tax brackets are choosing to stay at home (perhaps those marginally within the higher tax bracket) others seem to be shifting their purchases to professional or informal care providers.