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A man walks his daughter to daycare on a rainy morning in Montreal on Oct. 26, 2020.

Paul Chiasson/The Canadian Press

The she-cession is fading, employment is rebounding and the economy is getting back on its feet. So, what’s an activist government to do?

When the federal Liberals promised “ocean to ocean to ocean” child care last fall, they pointed to one of the most alarming aspects of the pandemic economy – the outsized losses in women’s employment – as a key reason to enact what would be one of Ottawa’s biggest social-program initiatives in decades.

Millions of Canadians, men and women, lost their jobs because of the novel coronavirus and lockdowns. But in the early months of the pandemic, women with younger children were harder hit, and the closing of schools and child-care centres pushed even more of those workers out of the labour force. The result was a steep drop in the participation rates for women, reversing decades of progress in a matter of weeks, a phenomenon that was soon dubbed the “she-cession.”

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The fall economic statement zeroed in on that idea in touting the need for an expanded federal presence in child care. “COVID-19 has caused a she-cession, rolling back many of the hard-won gains women have worked for over past decades. That is why we are starting today to lay the foundation of a Canadawide early learning and child care system.”

But the labour market has shifted dramatically again since Finance Minister Chrystia Freeland delivered that fiscal update in late November. Much of that gender gap has dissipated, undermining the rationale the government offered in the fall for expanded child-care spending, as well as underscoring a broader challenge for the Liberal government as it prepares to unveil its first pandemic budget.

With the economy picking up steam, the Liberals can no longer simply invoke the pandemic as a broad justification for all of their spending ambitions. That complicates the Trudeau government’s messaging for its plans to spend $70-billion to $100-billion on stimulus for an economy that might not need much stimulation by the time that money is being spent. And it also complicates the plan for a child-care expansion to reverse a “she-cession” that is already mostly reversed.

Now is the time for national child care, but it’s not just up to the federal government

But in the case of child care, at least, there’s a much more compelling rationale, one perhaps more in line with the government’s “building back better” mantra. Child care may not be needed as a short-term fix for the pandemic recovery, but it could be a long-term boost to productivity as the federal government looks to increase economic growth to shrink the debt burden relative to GDP. And as Canada’s population ages, a national child-care program would help to keep the labour pool from shrinking by allowing women easier access to paid work.

Economist Armine Yalnizyan, who was part of an 18-person group that met with Ms. Freeland in preparation for the budget, said a full-fledged federal effort would carry a hefty price tag, at $8-billion a year.

According to figures from the Parliamentary Budget Officer, an outlay of that size would absorb a large part of the federal government’s capacity to permanently increase spending or cut taxes, currently estimated to be around $19-billion.

But Ms. Yalnizyan said the resulting boost in economic activity would generate tax revenues that would more than offset that cost over time. “Not only is it good for kids, it’s good for the public purse,” she said. (Some economic models do forecast a complete offset of costs from increased revenues, but others have lower estimates of 40 cents on the dollar being recouped.)

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Gordon Cleveland, an associate professor emeritus at the University of Toronto, agreed that child-care expenditures would increase tax revenues. But he noted two challenges. First, the federal government would not get all of the benefits from its expenditures. And it would take years for growth in the labour force, and in productivity, to fully manifest and generate additional tax dollars. In the intervening years, child-care outlays would be a net expense.

There is still a gender gap for participation rates, which measure the percentage of the population that is working or looking for work. But the added effect of the pandemic has mostly dissipated for women aged 25 to 54. As the accompanying chart shows, participation rates for those women are now slightly higher than before the pandemic hit – although still lower than those of men in the same age group.

But there is still a gap in participation rates for younger women aged 15 to 24, as the second chart shows. However, relatively few women in that age group are mothers. And much of the decline in participation rates for this group appears to have more to do with the woes of the retail sector (where employment is tilted toward women) than the demands of child care.

There are a couple of important caveats: the participation rates don’t reflect situations in which a parent is still working, but at reduced hours. And such statistics cannot capture the stress of parents still working full time but juggling the care of children who are at home and learning online. “It just seems like parents have been on the firing line,” Ms. Yalnizyan said.

That widespread experience may have smoothed the political path for the Liberals’ child-care plans, something that Ms. Freeland hinted at in her remarks to the Liberal convention earlier this month. “I really believe COVID has created a window of political opportunity and maybe an epiphany, as you put it, on the importance of early learning and child care,” she said.

Part of the challenge that public child-care spending has faced is the perception that it primarily benefits the families that use it. To the extent that Ms. Freeland is right, the experience of the pandemic could be swinging public perceptions toward child care as a social good. It’s the difference between a private laneway that benefits only those living near it and a public road that all can use freely.

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Wilfrid Laurier University economics professor Tammy Schirle said there is good reason to believe that Canada as a whole could replicate Quebec’s experience in the 1990s, when the province introduced universal daycare. Participation rates for women rose quickly, with the gap between men and women narrowing. As a result, the province’s tax revenues increased enough to pay for the program.

That surge in Quebec started with participation rates for women much lower than they are elsewhere in Canada today. But Prof. Schirle says there is still considerable room for participation rates for women to rise in the rest of Canada, as evidenced by the persistent gender gap in the labour market – even with the rebound of recent months.

Tax and Spend examines the intricacies and oddities of taxation and government spending.

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