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Analysis of the sector
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Earlier this year we reported that a global economic analysis company, IBISWorld, projected ‘preschool education’ (see end note) would join data storage services, craft beer production, aquaculture, and courier delivery services as the fastest growing employment for 2017-18 and up to 2023.

IBISWorld analyst James Thomson told us that growing wages and demand for skilled employees in all these fields will provide solid opportunities for employment over the next five-year period.

Amplify’s editor, Bec Lloyd, had more questions for Mr Thomson, including quantifying the wages growth IBISWorld said preschool educators would see. As you read on, you’ll see this looks like an average salary increase of less than $1000 per annum over the next five years.

The impact of oversupply?

Oversupply of child care in certain parts of Australia (inner and middle ring suburbs of capital cities, major urban areas like the Gold Coast) is a new and growing concern for the sector. How well do you believe the highly regulated childcare sector can respond to market supply when base staffing levels, safety standards and quality education ratings must be maintained regardless of occupancy?

In the face of an oversupply of child care providers, fees charged by centres my decrease to attract parent spending and maintain revenue streams. This effect may be exacerbated by the minimum occupancy rates imposed on the centres.

While this would certainly benefit parents in the short term, through greater numbers of places available and lower fees, it will place financial strain on established centres. Child care centres may be forced to reduce expenses by increasingly relying on casual staff and delaying new equipment purchases.

It can be said that areas of undersupply of child care services remain across Australia. However, strict regulation surrounding child care centre planning and the long application processes may cause industry supply to further lag behind geographical trend in demand in the future.

Will the fire die down?

With both real household discretionary income and labour force participation rates expected to fall in 2017-18, would you expect some of the heat to go out of growth in the number of childcare services in Australia in the short term?

This is indeed a possibility. Falling labour force participation may have the dual result of less income available for parents to cover the out-of-pocket expenses for child care, and that parents may have greater time available to care for their children in the home. These two factors may take some of the pressure off the expansion of the child care sector in the short-term. Real household discretionary income also impacts the capacity of parents and guardians to fund the out-of-pocket costs of child care. It is a possibility that stagnant wages growth and rising household expenses (such as mortgage repayments and utility bills) may restrict household incomes and thus parents’ ability to afford child care services, also causing growth in the sector to cool in the short-term.

Benchmarking

Are there other highly regulated and subsidised sectors that you monitor which provide a helpful comparison to childcare? Private schools for instance?

IBISWorld has reports on two other industries which may provide some insight. Government Schools in Australia and Private Schools in Australia are both heavily regulated industries and make substantial use of government funding to support their operations. These reports focus on primary and secondary education in Australia. While private schools lean heavily on parent fees for income, government schools rely far less on fees and charges to parents as a basis of funding.

Both the schooling and child care sectors in Australia are seeing significant regulatory upheaval and increases government funding, for example through the Quality Schools Framework and Child Care Subsidy respectively, aimed at increasing equity and student learning outcomes. Both of these developments are expected to shift the tide of parent demand and may provide a useful basis for comparison.

IBISWorld graphic: preschool costs compared to other sectors
IBISWorld graphic: preschool costs compared to other sectors

Would two years be twice as nice?

Your release focused on preschool education being a top growth area for employment over the next five years and this was largely based on the impressive growth of preschool enrolments under the National Partnership Agreement.  With the NPA in extended negotiation for renewal and the states and territories pushing hard for two years of funded preschool, is it possible you would revise your growth estimate even higher?

At present, growth estimates for employment in the preschool sector are principally based on projected student numbers and parent demand. The extension of the National Partnership Agreement will certainly require preschool providers to maintain minimum staff-to-student ratios, which is expected to drive employment growth in the preschool industry.

However, a large portion of the current preschool workforce are on part-time or casual contracts. Where high growth in student numbers and parent demand emerges, preschool providers may offer these staff full-time positions, as opposed to employing greater numbers of personnel. Consequently, until agreements with the states and territories are finalised, the estimates for industry employment numbers remain steady.

Put a number on it

You suggest industry wages are likely to grow thanks to higher levels of qualifications – can you estimate that wage growth in dollar terms?

Higher levels of required qualifications for employment are expected to encourage growth in preschool staff salaries in the future.

However, a significant portion of preschool staff will likely remain on part-time or casual contracts, which will constrain wages growth.

In dollar terms, total industry wages for the preschool industry are expected to rise to $922.7 million by 2023. This equates to an increase in the average industry wage from approximately $55,680 in 2018, to $56,521 in 2023.

Explanation of ‘preschool’ in this report
Across almost all IBISWorld reports, the distinctions between industries originates from the definitions provided by the Australian Bureau of Statistics. Fundamentally, preschool aims to build a basis for beginning education. At preschool the goal is to introduce the children to a school environment and structured learning, and to begin to encourage the behaviours expected in a school setting. By comparison, child care aims to provide supervision for children when the parents or guardians are unavailable. IBISWorld also considers other factors in the distinguishing the two industries, such as the level of education and training required for employment in the industry and the age of the child. Children are typically four years old while undertaking preschool, as opposed to child care, which caters for infants and children that are up to 12 years of age.

IBISWorld graphic: preschool in a mature market stage
IBISWorld graphic: preschool in a mature market stage

 

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