Write a business report that includes the following headings: • Description of the main issue/problem • Description of the impact on stakeholders • Analysis of economic concepts relevant to the case study • Recommendations for alternate responses to the i Essay Example
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Table of Contents
Executive Summary 3
Description of the Main Issue 4
Description of the Impact on Stakeholders 5
Analysis of Economic Concepts 6
Demand and Supply Theories 7
Theory of Unemployment 8
Government Intervention 9
GDP and Economic Growth Models 9
Macroeconomic theory 11
The key factors affecting childcare service in Australia include cost, availability, flexibility, and quality. Emerging trend in the sector is where childcare operators move to inner-city areas has led to uneven distribution of the services. The main forces driving the operators to such areas include high returns and occupancy. Women participation in the workforce is lagging behind because of the high cost of childcare services as they are forced to leave the workforce to take care of their young ones. Childcare services have a lot of effects in the economy because it influences productivity of an economy. It also affects the households, especially when they are not in a position to pay for the services.
Description of the Main Issue
Effective, affordable, and available child care system is important for any economy for it to maximize its productivity, leading to economic growth and development. Therefore, a country should have efficient and effective childcare system, which is not always the case due to many challenges the sector is facing. Australia is one of the countries facing some challenges with its childcare systems (Wilkins and Cruger, 2014). Four main challenges facing the system in the county include are related to cost, availability, quality, and flexibility of childcare services.
About 30% of households in Australia have problems with high cost of childcare services and statistics shows that a family with one child spends about 9% of its disposable income on childcare services fees. Despite the high cost of childcare services, there is even uneven distribution of childcare operators in the country with the majority of them located in inner-city suburbs where there is high chance of getting high returns and occupancy. Consequently, low income areas are neglected, leading to unavailability of such areas. However, even those who are willing to pay more in the inner-city areas find it hard to secure a place due to high demand and limited, which has led to an increase in price childcare services from national average of $100 a day to about $170 a day (Wilkins and Cruger, 2014). Childcare systems, therefore, is a problem in Australia and it affects the general productivity of the country.
The segment of the population that is mostly affected by this problem is the women, especially those in the workforce (Saffron, Wilkins and Cruger, 2014c). Participation of women in the workforce has been lagging behind due to the shortcomings in the childcare systems, as they are the people who actively participate in taking care of children. The high cost and the unavailability of childcare services are forcing women to spend more time at home taking care of children instead of participating in other productive activities. Consequently, there has been reduced productivity in the country despite the fact that women can improve the economic growth by contributing about $25 billion annually to the Australian GDP (Wilkins and Cruger, 2014). Therefore, shortcomings in the childcare system do not only affect women, but the Australian economy and children as well.
There is an urgent need to solve the problem to increase the participation of women in the workforce and to increase the productivity of the country. The government has been trying to make the childcare services affordable by covering 50% of the childcare cost of up to $7500 annually (Wilkins and Cruger, 2014b). However, the policy has not helped much because of the complexity of the matter as it involves many stakeholders with different interests. The major stakeholders who have significant influence are the profit and not-for-profit operators who are majorly driven by the desire to maximize the profit.
Description of the Impact on Stakeholders
There are five main stakeholders in the childcare system in Australia and they include the Australian government, not-profit-operators, profit operators, women and households. All the stakeholders are either negatively or positively affected by the challenges facing childcare systems in Australia (Wilkins and Cruger, 2014). The operators seem to be benefiting from the situation while the remaining stakeholders are negatively affected, especially women and households.
Australian government is forced to spend more in implementing Children Rebate policy. It is estimated that the government is spending about $5 billion annually to finance the policy and the expenditure is expected to increase due to the increase cost of childcare services. Some of the factors that have led to increase expenditure are luxury services like body massage and yoga for toddlers, which many not are necessary (Wilkins and Cruger, 2014). The government is not able to collect much tax because of the low number of women participating in the labor force, which negatively affects the government service delivery. Consequently, there is low productivity and GDP growth rate.
Women and households have also been affected by the crisis in the childcare system. Many women have not been able to participate in economic activities because they have to take care of their young children (Wilkins andCruger, 2014b). Consequently, their economic independence has reduced as they have to rely on other family members for financial support. The households have also been forced to spend a significant portion of their disposable income to finance childcare service, which is likely to affect the saving and investments in such families. In addition, children may lack adequate social support they need for their healthy development, as parents are financially constrained.
The operators are the beneficiary in the situation due to increased demand for childcare services in Australia. They are charging more for childcare services because many parents are desperate for the services as they need to resume work and they are willing to pay any amount for the services (Wilkins and Cruger, 2014). As a result, many operators are moving to the inner-city suburbs with promising returns and high occupancy rate. In order to justify their high charges, they are adding value to their services by providing additional luxurious services like body massage, yoga for toddlers, and health care services. Finally, the operators are able to make profit and expand their businesses.
Analysis of Economic Concepts
Demand and Supply Theories
Demand is defined as the quantity of goods or services that customers are willing and in the financial position to buy. The law of demand states that an increase in the price of goods or services leads to a decrease in demand by holding all other factors constant. Supply, on the other hand, refers to the quantity of goods or services that the seller is willing and in a position to sell. The issue of childcare services, therefore, can be related to the demand and supply theories.
There is increased demand of childcare services in Australia, which has led to increase in the prices of childcare services, especially in the inner-city suburbs (Wilkins and Cruger, 2014). Increased prices in the inner-suburb areas are also attracting more operators to such areas. However, it seems that the demand for childcare services is more than the supply, making the operators to increase their prices because the parents are desperate for the services because of the limited vacancies. The situation can be illustrated in the diagrams below:
Q2 Q1 Quantity
P: The price of childcare services
Q: The quantity demanded
Therefore, as the price of health services increase from P1 to P2, the quantity demanded decrease from Q1 to Q2, as the number of families that can afford the services decrease.
Q1 Q2 Quantity
P: The price of childcare services
Q: The quantity supplied
As the price increases from P1 to P2, the quantity supplied by the childcare operators also increases from Q1 to Q2. Therefore, an increase in the price in the inner-city areas attracts more operators, making them to ignore other low income areas.
Theory of Unemployment
Unemployment is another issue that is related to childcare. One of the factors that discourage a person from working is the inability to find child care services. Unemployment associated with childcare majorly affects women because of their active role in taking care of young children (Wilkins and Cruger, 2014). The mothers can even take two weeks without undertaking any paid work, making them to fall under the category of people who are unemployed.
Unemployment affects both individuals and the economy at large. People who are unemployed find it hard to meet their basic needs forcing them to depend on other people, which lead to increased rate of dependency. Increased dependency lowers savings of households, preventing them from investing (Wilkins and Cruger, 2014b). Low saving, therefore, leads to low investment, which finally affects the economic performance. Unemployment also leads to reduced productivity. Therefore, the inability of households to access affordable health care can lead to financial crisis and reduced productivity of an economy.
Government intervention in the market affects the demand or supply in the market, which end up affecting the price of goods or services. The main instrument that the government uses to intervene in the market is the policy, which forces market players to comply. The policy helps the government to intervene through the use of price control or taxation (Gibbons & Roberts, 2013). However, the government must way the options because price control is considered to be unfair to traders and taxation is unfair to both the consumers and trader because both bear the burden of tax. Therefore, the best option in this case is to increase the number of public childcare centers at a subsidized price (Wilkins and Cruger, 2014). As a result, the quantity demanded will be equal to quantity supplied, leading to a fair price of childcare services.
GDP and Economic Growth Models
GDP refers to the market value of goods and services that are produced in an economy during a particular period of time (Gibbons & Roberts, 2013). The goods and services produced must be in their final stages of production and are ready for consumption. Factors that influence GDP include consumption, investment, goods and services bought by the government and net export (GDP = C + I + G + NX). Inability to access childcare services, therefore, negatively affects GDP of Australia because it leads to reduced consumption and investment due to low savings (Wilkins and Cruger, 2014b).
Economic growth, on the other hand, refers to the increase in the commodities that are produced in a country in a given period of time (Gibbons & Roberts, 2013). A positive change in GDP always shows an economic growth. However, the high cost of childcare services reduces the number of women participating in the workforce, leading to reduced productivity. It therefore affects both the GDP and the economic growth of Australia (Wilkins and Cruger, 2014c). Production possibilities frontiers (PPF) explains economic growth
The economy is most efficient at any point along the PPF curves. When economy grows, the curve shifts from AA to BB.
Macro economics is concerned about the overall economy and it considers how various sectors like government, household, business and foreign sector interacts in an economy. In this case it shows the interaction between the government, business and the household (Gibbons & Roberts, 2013). The government is able to control childcare systems through government expenditure and taxation (Wilkins and Cruger, 2014). The household on the other hand saves in the financial market where the business sector borrows money and invests in business. Each sector in the economy is important in enhancing economic growth.
Childcare services are important to be families and the government. When individual are able to access affordable child, they will be able to participate in the economic activities, leading improved productivity. The increased demand of childcare services has led to increased cost and desire to make more profits has led to uneven distribution of childcare services, as the operators move towards the inner-city areas.
Only the basic childcare services should be subsidized by the government to avoid unnecessary expenditure on luxurious services.
The government should increase the number of public childcare centers in low income areas to reduce the shortage
The government should come up with tax policy that enable the second income earner in a family to earn more after the tax
Gibbons, R., & Roberts, J. 2013. Economic theories of incentives in organizations. The Handbook of Organizational Economics, Princeton University Press, Princeton, NJ, 56- 99.
Saffron, D. Wilkins, G. and Cruger, C. 2014c. Quality childcare comes with a premium price tag. Retrieved from http://www.smh.com.au/nsw/quality-childcare-comes-with-a-premium- price-tag-20140307-34cro.html
Wilkins, G. and Cruger, C. 2014a. Childcare operators being enticed away from outer growth areas. Retrieved from http://www.smh.com.au/business/childcare-operators-being- enticed-away-from-outer-growth-areas-20140307-34c72.html
Wilkins, G. and Cruger, C. 2014b. Can we arrest the childcare slippery slide? Retrieved from http://www.smh.com.au/business/can-we-arrest-the-childcare-slippery-slide-20140307- 34cty.html
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