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Childcare strike: Will the G8 Education Ltd share price fall?

Could the G8 Education Ltd (ASX: GEM) share price fall with the latest childcare strike?

G8 Education Share Price

Source: Google Finance

Source: Google Finance

What’s happened?

At around 3pm today, more than 1,000 childcare workers are expected to walk off the job to demand higher wages. The strike coincides with Equal Pay Day, an initiative aimed at closing the gap between men’s and women’s pay.

United Voice, a union, said some Cert III qualified childcare workers get as little as $21 an hour. The industry is 97% female. News.com.au recently noted that a metal fitter with a Cert III would earn $37.89 per hour, on average.

Is G8 Education affected?

It is expected that a number of centres will be forced to close as a result of today’s strikes.

The biggest public company in Australian childcare is G8 Education. At the time of writing, it had not made a media release stating if it is likely to be affected.

G8 Education: Caught between a rock and a hard place?

The childcare industry is a very sensitive topic and as a result, it is often affected by government regulation.

Over the past eight years, the subsidised cost of childcare has risen by as much as 7.5% per year while household income has risen just 2%. As noted by Alex Shevelev of Glennon Capital that could mean single mothers returning to work at an average wage face a ‘tax equivalent rate’ of up 74.5%.

With revenue up 10 times since 2010, companies like G8 Education appear to have skimmed a lot of these price increases into their own pockets. At the bottom line, G8 Education has watched its profit margins rise from almost 6.8% to over 10%.

Meanwhile, the government finds itself wedged between families and the industry, a spot it probably shouldn’t be in at all. The problem with subsidies is that eventually, they will push up all costs in the industry and may require even more subsidies.

Should you buy G8 Education shares?

I’m not a fan of G8 Education shares because I think the company’s revenue stream has a lot stacked against it. Changes to government subsidies, industry-driven worker pay rises and regulation could each affect the company’s bottom line.

Arguably, with a big dividend yield on offer, investors may be subsidised (pun intended) for the risk, but I’m not relying on it.

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Motley Fool Contributor Owen Raszkiewicz does not have a financial interest in any company mentioned. Owen encourages your feedback. You can follow him on Twitter @OwenRask.

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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