Raising female labor force participation from 22% to 30% represents one of the Saudi Arabian government’s goals in its Vision 2030. All advanced economies feature strong female participation in the labor force, as robust economies make use of all available resources, male and female.
When it comes to designing policies that improve women’s role in the economy, the Saudi government should study a US phenomenon that appeared during the last 20 years and take preemptive steps to avoid facing the same problem.
Female participation in the US labor force increased in the postwar period, exceeding 60% in 1980, and 70% in 1990. However, at the end of the 1990s, women’s involvement began to retreat, and that trend continues today: 72% in 2014, compared with 77% in 1999.
Japanese economist So Kubota recently sought to explain this contraction, which runs counter to the sustained increase that most other advanced economies experienced in female labor force participation throughout the same period.
In a paper titled: “Childcare costs and stagnating female labor force participation in the US,” Kubota attributed the recent decline in female participation to substantial increases in the costs of preschool and private childcare. In the overwhelming majority of families that feature a working mother, the father also works, creating a need for an external party to look after children before they are old enough to go to school for the length of the working day.
Families are faced with two primary options: market solutions, which include preschools and private childcare at home; and non-market solutions, such as grandparents. In the period prior to 1995, the cost of market options were stable; consequently, efforts at improving female labor force participation were successful. However, market childcare costs began increasing post-1995, and in 2010, costs were 32% higher than their 1990 level in real terms, which caused the aforementioned contraction in female labor force participation in the US.
Kubota went on to analyze the cause of rising childcare costs, and he found that a government policy designed to help families arrange childcare—childcare subsidies for families with two working parents—had backfired.
Prior to the introduction of subsidies, private childcare centers were beyond the means of many families, keeping many mothers away from the formal labor force. However, within this class of family, some mothers who stayed at home to care for their own children also looked after those of neighbors, charging their parents a fee that was significantly below the market alternatives. This enabled many mothers in the neighborhood to pursue traditional careers.
The government decided to offer financial subsidies to mothers considering market options as a way of helping those mothers to enter the labor market. The immediate impact was positive, as the support enabled many mothers to arrange suitable, market-based childcare. However, there was an adverse, indirect effect, as the subsidies incentivized many of the aforementioned mothers who were de facto neighborhood childcarers to leave their homes and look for regular jobs, abandoning a role that had a significant positive effect on female labor force participation, especially for those families with limited means. This new configuration of childcare options constituted a diminution in the market’s aggregate ability to provide childcare, combined with an increase in aggregate demand, as former childcarers started to seek childcare. The result was rising childcare prices, and damage to the economy.
In the case of Saudi Arabia today, as well as all of the GCC countries, there is no doubt that one of the primary impediments to female labor force engagement is childcare considerations. Many families opt for foreign domestic helpers, but this does not suit all cases, since domestic helpers usually do not possess professional childcare qualifications, in contrast to the more expensive alternative of preschools.
Accordingly, the government should consider passing new legislation that improves the childcare options available to families, and reduces their cost, possibly via intelligently designed subsidies. Moreover, in an effort to avoid the associated problems that emerged in the US case, policies should be designed in consultation with all stakeholders, including home childcare providers and grandparents.
Beyond this, there needs to be a continued monitoring of the ease of arranging childcare, including its cost, even if subsidies have a direct, negative effect on the cost. Whatever plans are drawn up need to be flexible and responsive to the emergence of unexpected challenges.