Social benefits from job creation much higher in high-unemployment local economies

A paper of mine was just published in the Review of Environmental Economics and Policy. The paper is entitled “The Social Value of Job Loss and Its Effect on the Costs of U.S. Environmental Regulations”.

The paper deals with a key issue for analyzing a wide variety of policies, which either create or destroy jobs in a local economy.  This key issue is how to evaluate the social benefits or costs of such job creation or destruction. How are these benefits or costs related to the earnings associated with the jobs? Do such benefits or costs vary with the prevailing unemployment rate in the local labor market? How much might accounting for such social benefits or costs affect evaluations of the benefits or costs of a wide variety of policies, such as the environmental regulations considered in this article?

The environmental regulatory issue is that with the Great Recession, some groups opposed to more stringent environmental regulations argued that high unemployment should lead to some cutback of regulations that might hurt job creation or destroy jobs. Current regulatory practice is to describe possible job creation or job destruction effects in benefit-cost analyses of regulations, but not to include an explicit valuation of these job effects in the formal benefit-cost analysis. The benefit-cost analysis of regulations typically focuses on the regulation’s compliance costs versus its health and other benefits.

The argument of the paper is first, that policies that affect labor demand, either positively or negatively, typically have benefits or costs that are only a fraction of the earnings associated with those jobs. Second, these benefits or costs are much greater in local economies with high-unemployment, compared to local economies with low-unemployment. Third, environmental regulations largely redistribute jobs around the U.S. rather than affecting overall U.S. jobs, and therefore such regulations only have net national costs if they redistribute jobs away from high-unemployment areas. Fourth, even if environmental regulations tended to redistribute jobs away from higher-unemployment regions of the U.S., for most real-world environmental regulations, the total social costs of any lost jobs due to regulations are only a modest percentage of the regulation’s regulatory costs, and would not tip a benefit-cost analysis.

There are large social benefits or costs associated with a person getting a job or losing a job. These social benefits or costs probably exceed the earnings involved, for several reasons: there are important psychological benefits to being gainfully employed given modern social norms; job-holding has important spillover benefits for other family members.

However, when a job is created or destroyed in some local labor market due to some labor demand change, which might be brought about by environmental regulations or economic development incentives, then only a portion of that job’s earnings actually affects unemployment. A large proportion of local job creation or job destruction leads not to changes in employment rates, but rather to changes in in-migration or out-migration. These in- or out-migrants would have fared similarly in the labor market, and so are not substantially affected by the labor demand change.

If the local labor market has high unemployment rates, then less of any job change is reflected in changes in migration rates, and more in changes in unemployment rates. Therefore, the social costs per job created or destroyed is higher in high-unemployment local labor markets.

Overall, I find that due to changes in unemployment, the social benefit or cost of job creation is about 10% of earnings in a low-unemployment local economy, and about 19% of earnings in a high-unemployment local economy.

For most environmental regulations, including possible job destruction effects does not come close to tipping the benefit-cost analysis. Even under a worst case scenario, job destruction effects, and their social costs, are typically only a small percentage of the regulation’s overall compliance costs. For the major regulations that I examine, a plausible maximum value for the social costs of job loss is less than 15% of overall regulatory costs. Because benefits are in most cases far greater than overall regulatory costs, this slight boost to regulatory costs is insufficient to make a difference to the regulatory analysis. For most regulations, more precise estimates of health benefits is more important for refining the benefit-cost analysis than including social costs of job loss.

However, in cases where a regulation particularly impacts a high-unemployment area, it may be important to consider the social costs of job loss due to a regulation.  If these social costs are high, we might want to consider ways to offset these costs. This could be accomplished by delaying the regulation’s implementation, assisting affected workers to offset the social costs, or through job creation measures in the high-unemployment area.

Posted in Uncategorized

Good policies will usually not “fix everything”

One surprising reaction to the Kalamazoo Promise has been to try to downplay the Promise’s success by emphasizing that many problems remain in Kalamazoo despite the Promise. While this is true, it is irrelevant to whether the Kalamazoo Promise is a good policy. Policies can have benefits far greater than costs without fixing all problems.

As an example of such a reaction, an op-ed by Richard Reeves of the Brookings Institution appeared in the Los Angeles Times on July 13, 2013.  The op-ed was entitled “Free college? It doesn’t fix everything”. The op-ed informed readers that the “The Promise has lifted college completion rates, but quite modestly, and far from equally.” To support this statement, the op-ed did not cite evidence on the actual effects of the program (e.g., how is the world WITH the Promise estimated to differ from the counterfactual world without the Promise). Rather, the op-ed cited some low college enrollment and graduation rates of black students after the Promise, without any evidence presented on how the Promise might have altered such statistics.

The op-ed concludes that “The lesson of the Kalamazoo Promise is that even dramatic reductions in the cost of college have modest results in terms of leveling the playing field.”

Here is what the evidence actually shows on the effects of the Promise, based on the recent report I wrote with my colleagues Brad Hershbein and Marta Lachowska. Our report evaluated the Promise by seeking to compare how the Promise had changed educational attainment for similar students over time.

  • The Promise increases post-secondary credential attainment rates as of 6 years after high school graduation by one-third. The baseline rate was 36%, and the Promise’s effect was to increase the post-secondary credential attainment rate by 12%, an increase of one-third. Of this increase in post-secondary credential attainment, four-fifths was due to an increase in bachelor degrees.
  • Is this effect a “modest result”? That depends what you mean by “modest”, a quite subjective term. What is true is that if one compares the present value of the expected future career earnings due to the Promise’s effects on credential attainment, with the present value of the costs of the Promise’s scholarship dollars, the ratio is over 4 to 1. I would call that a large benefit-cost ratio. Furthermore, this benefit-cost ratio ignores many other benefits of the Promise. For example, for Promise recipients who would have completed college anyway, the Promise lowers post-college debt loads, which might well have significant future benefits. In sum, effects of the Promise are “large”, not “modest”, in the operational sense that the Promise seems to easily pass a benefit-cost test.
  • Does the Promise help level the playing field? That’s somewhat hard to pin down because the sample sizes for different sub-groups of Promise recipients are small enough that most of the estimated differences across sub-groups are statistically insignificant. However, the point estimates suggest that the Promise’s benefits are quite broad. For example, the point estimates suggest that the absolute effect of the Promise on the proportion of non-white students getting a bachelor’s degree is greater than its effects on white students. The implied PERCENTAGE effects of the Promise on non-white students are almost 50%, that is for every 2 non-white students getting a bachelor’s degree in a world without the Promise, there is now a third non-white student joining them in also getting a bachelor’s degree. Overall, I suspect that at least among high school graduates, the Promise probably has a greater percentage effect on future earnings for non-white graduates than for white graduates. We are doing further work with our data to explore some of the distributional effects. However, given the lower baseline educational attainment and earnings of non-whites compared to whites, it seems likely that the PERCENTAGE effects of the Promise on educational attainment and economic status are greater for non-whites than for whites. The Promise probably helps make the playing field more level.
  • Does the Promise “fix everything”? This is a straw man that, as far as I can tell, is non-existent or at least rare. I have not seen any specific quote in which someone says that the Promise “fixes everything”. No sensible person believes that a free college program will eliminate educational attainment gaps across racial or income groups, or eliminate income inequality, or increase Americans’ skills to where they probably need to be.

Why does Richard Reeves want to emphasize that the glass is half-empty? One clue is his final paragraph, where he argues that “the weaknesses in the U.S. higher education system run much deeper than financial affordability.” He then refers to the lack of high-quality vocational learning, problems with quality control in higher education, and other issues. The underlying thinking seems to be a concern that if the Promise is seen as successful, this will lessen the interest of policymakers and the public in other needed educational reforms.

However, empirically it seems that the Promise and its successes has encouraged other policy solutions rather than discouraged them. When people see hope that at least part of a problem can be addressed, they are encouraged to try to address other parts of the problem. For example, in Kalamazoo, the Promise has led to efforts to significantly upgrade after-school programs and other community supports for skills development. The Promise has also led to efforts at the local community college to upgrade support services for students.

We said the following in the concluding paragraph in our paper:

“…The Promise effects have the potential for solving only a portion of America’s skills challenge. The Promise increases postsecondary credential attainment at six years after high school graduation from 36 percent to 48 percent. Presumably some of the remaining 52 percent might benefit from receipt of a postsecondary educational credential. As one might expect, “free” college is insufficient by itself to ensure higher skill levels through postsecondary education. Other policies prior to age 18 are likely needed to improve outcomes for more students. However, simple and generous scholarship programs have the potential of being a cost-effective component of the policy toolbox to increase the educational attainment of American students. “

In other words: The Promise has a large bang for the buck, so simple but generous college scholarship programs should be celebrated, not denigrated for not “fixing everything.” However, more needs to be done. But the need for more should not be promoted by downplaying the “good news” of the Promise’s success.

Posted in Distribution of benefits | 2 Comments

Thinking again about earlier-age versus later-age interventions in skills development

The recent paper on the Kalamazoo Promise, by me and my colleagues Brad Hershbein and Marta Lachowska, found that this program, which provides up to 100% free college tuition for graduates of Kalamazoo Public Schools, increases college completion sufficiently to have very high benefits. The program is estimated to have an annual rate of return of over 11%, and to offer a benefit-cost ratio of over 4 to 1. These benefits are estimated based on the likely higher earnings due to the additional college credentials induced by the Promise’s tuition subsidies.  (See previous blog post for a summary of this study and its results.)

These returns are quite high. In my recent book, From Preschool to Prosperity, I estimate that high-quality preschool has a benefit cost ratio of a little over 5 to 1. I also estimate that high-quality child care/pre-K from birth to age 5 for disadvantaged families has a benefit-cost ratio of 1.5 to 1. A similar benefit-cost ratio of 1.5 to 1 is found for the Nurse Family Partnership, which provides pre-natal and parenting assistance to first-time disadvantaged moms from the pre-natal period until age 2.  So the Kalamazoo Promise has a similar benefit-cost ratio to high quality preschool, and a higher benefit cost ratio than some high-quality earlier-age interventions.

In addition, research by Nobel-prize-winning economist James Heckman and his colleagues finds that the Perry Preschool program has a social rate of return in the range from 7 to 10%. For a variety of reasons, these figures are calculated so differently from my figures that they are not exactly comparable. Still, the suggestion is that the Promise intervention that occurs at ages 18 -28 (students have 10 years to use the Promise) may have benefits that are comparable to very high-quality early childhood programs

This raises again the issue of earlier-age versus later-age interventions. Some in the policy community have sometimes argued as if there is some strong regularity, that earlier interventions almost always have higher rates of return.

For example, New York Times columnist Nick Kristof has argued the following:

“When we hear “early childhood education” we mostly think of pre-K. In fact, the earlier the intervention, the better. Helping pregnant moms avoid substance abuse is highly cost-effective, and then helping them through home visitation programs like Nurse Family Partnership in the first couple of years of life is crucial as well. By the time you get to age 4, it’s a little late, and children are so far behind that they never catch up.”

Mr. Kristof may be in part relying on a widely-circulated figure, which shows a rate of return to human capital investments at different ages at which the investment is made. The figure shows the rate of return as starting very high for investments made near birth, and then steadily declining as the age at which the investment is made increases.

This figure can be found at a variety of places around the internet; for example, see it in various materials at the website  , such as at page 6 of this brochure.

This figure appears to go back to some research by Nobel-prize-winning economist James Heckman. He argued in a 2008 paper that

“As currently configured, public job training programs, adult literacy services, prisoner rehabilitation programs, and education programs for disadvantaged adults produce low economic returns. Moreover, for studies in which later intervention showed some benefits, the performance of disadvantaged children was still behind the performance of children who experienced earlier interventions in the preschool years…Remedial interventions for disadvantaged adolescents who do not receive a strong initial foundation of skills face an equity-efficiency tradeoff. They are difficult to justify on the grounds of economic efficiency and generally have low rates of return.”

I think this research by Heckman has been misinterpreted by some to imply that there is some iron law of human capital investments that earlier investments are always better and always have higher benefit-cost ratios. This is not true. Although later investments may have some limitations on whom they can reach, and how high a percentage effect they can have, well-designed later human capital investments often can have high rates of return and high benefit-cost ratios.

I am not the first researcher to point out that the relationship between social rates of return, and the age at which human capital investments are undertaken, is more complex than might be implied by some interpretations of the age versus rate of return figure.  For example, in 2010, noted early childhood researcher Arthur Reynolds and his colleagues reviewed the literature on the benefits and costs of human capital investments at various ages. They concluded the following:

“Figure 8.5 [in this chapter] shows the returns per dollar invested for several types of programs with available cost-benefit analyses over the first 9 years of life by the age of entry into intervention. These include family-centered home-visiting programs, preschool and prekindergarten programs, full-day kindergarten, and class-size reduction programs…Although programs at all ages show evidence of positive economic returns exceeding $1 per dollar invested, preschool programs for 3- and 4-year-olds generally show the highest returns.” (Reynolds et al., p. 181)

Another recent paper, by Susan Dynarski, Joshua Human, and Diane Whitmore Schanzenbach, compared the cost-effectiveness of various policies, including policies at various ages, in increasing college enrollment. This analysis does not of course capture all benefits of these policies, but it does consistently analyze one benefit. They concluded the following:

“…The amount spent by Head Start to induce a single child into college is therefore $133,333….For Abecedarian [high-quality child care and pre-K birth to age 5 for disadvantaged families], the figure is $410,000….The amount spent in Project Star [the Tennessee experiment to reduce class size in grades K-3] to induce a single child into college is $400,000. If the program could be focused on students in the poorest third of schools…, then the cost would drop to $171,000 per student induced into college.

Upward Bound [which provided at-risk high school students with increased instruction tutoring, and counseling], if [it] could be targeted to students with low educational aspirations, [would have an] implied cost of inducing a single student into college [of] $93,667. .. The Social Security Student Benefit Program, which paid college scholarships to the dependents of deceased, disabled, and retired Social Security beneficiaries, [had a] cost per student induced into college [of] $21,000…The FASFA experiment, [which] randomly assigned families to a low-cost treatment that consisted of helping them to complete the FASFA, the lengthy and complicated form required to obtain financial aid for college, [had] an implied cost per student induced into college of $1,100. “

In a recent report on Michigan school finance by Kevin Hollenbeck and several Upjohn Institute colleagues, including me, we noted that a number of interventions from birth to age 18 have benefit-cost ratios of greater than one, if we focused on the increased present value of career earnings due to the intervention, compared to costs. (See previous blog post for a copy of the relevant table). Preschool and other early childhood interventions have high benefit-cost ratios; for example, high quality preschool has a ratio of increased future earnings to cost of 5.3, that is increased future earnings whose value is $5.30 for each dollar of investment. But later interventions also work.  High-quality summer school for children who are academically behind has an increased future earnings to cost ratio of 9.0. High school career academies, that provide a more career-oriented education for students who are so inclined, have an earnings benefits to cost ratio of 8.7. Finally, a program of math tutoring for disadvantaged 9th graders, combined with cognitive behavioral therapy, has an estimated earnings benefits to cost ratio of 10.8.

What is one to make of all this? It is true that human brains are more malleable at earlier ages. Therefore, if we invest earlier, we can make a larger percentage difference to later outcomes. We can also make a larger difference to a greater variety of people, as options will not have been foreclosed by early damage to human development.  As Heckman argued in his 2008 paper:

“Skills beget skills and capabilities foster future capabilities. All capabilities are built on a foundation of capacities that are developed earlier. Early mastery of a range of cognitive, social, and motional competencies makes learning at later ages more efficient and therefore easier and more likely to continue.”

But this also implies that these earlier investments have the highest returns when they are followed by later cost-effective investments. Heckman also argues in this 2008 paper that

“The advantages gained from effective early interventions are best sustained when they are followed by continued high quality learning experiences….Due to dynamic complementarity, or synergy, early investments must be followed by later investments if maximum value is to be realized.”

In other words, later investments also matter. These later investments may also have high rates of return.

What is true about later investments is that in order to be cost-effective, they have to be more targeted, in two senses. First, they have to be targeted at particular groups of people who at these latter ages are capable of greatly increasing their future prospects. Second, these later interventions have to be targeted at the particular barriers that are impeding progress, and that are not overcome by the normal operations of our society.

So, for example, the Kalamazoo Promise’s high estimate returns in our paper are due to our estimates that the program induces 12% of eligible students to get a post-secondary credential who otherwise would not do so. The other 88% of eligible students do not have their credential attainment affected in our estimates – either they would have received a post-secondary credential without the Promise, or the Promise was not enough to induce them to receive a credential, at least within the 6-year window post-high school considered in our paper.  These 12% of “induced” students are affected by the Promise’s combination of a generous scholarship plus whatever cultural shifts in expectations and support accompany that scholarship offer. For at least this group of students, more money and changed attitudes help overcome a barrier to success. Furthermore, the Promise’s high returns occur for an urban school district, with many disadvantaged students, although the benefits seem to occur for both advantaged and disadvantaged students.

Some type of targeting is also helpful for other later interventions. Class-size reduction works best for low-income schools, as noted by Dynarski et al. above. Upward Bound works best when targeted at students with lower educational aspirations. Social Security benefits for college tended to target low-income students with high financial barriers to college. Help in completing financial aid forms will only help the future economic prospects of high school seniors who have the skills needed to effectively use the increased financial aid that results.  Summer school works for students who are academically behind but motivated to improve. Career academies work for some students interested in career-oriented education, who have the capabilities in high school to respond to this alternative approach.  Math tutoring and cognitive behavioral therapy is targeted at disadvantaged ninth graders, and is specifically  oriented towards overcoming some of the hard skill and soft skill issues for this group.

What about earlier-age interventions? Although brains are more malleable at earlier ages, and therefore the potential benefits of earlier interventions may be greater in percentage terms, costs may sometimes be greater as well.  Particularly in infancy, many interventions have to be one-on-one or have very small class sizes in order to be high-quality, which raises the cost per child. This may be part of the reason for the finding, in both my work and the work of Arthur Reynolds and his colleagues, that high-quality preschool tends to have greater benefit-cost ratios than some earlier-age investments. As I said in my 2014 book, From Preschool to Prosperity,

“Pre-K services at ages three and four target an age range that is a “sweet spot”: the child’s brain is still malleable enough for modest interventions to have large long-run effects, but the child is old enough that the child is ready to learn in larger groups that are cost-effective to run.”  (p. 50)

In sum:

  • Investments at a wide variety of ages can have very high benefit-cost ratios.
  • Later investments may need to be more targeted in what groups are served, or what services are provided, in order to obtain high benefit-cost ratios.
  • Early investments may yield the largest percentage effects, but sometimes can be more costly, which can hold down their benefit-cost ratios.
  • The best strategy includes well-designed investments at a variety of ages, as such investments complement each other.
Posted in Distribution of benefits, Early childhood program design issues

Kalamazoo Promise boosts college completion by one-third

In a paper released on June 25, 2015, the Kalamazoo Promise college scholarship program is estimated to increase college completion by one-third.  The college completion effects of the Promise would be expected to significantly increase future earnings. Based on predicted future earnings effects, the annual rate of return to the Promise’s tuition subsidies is over 11%.

This paper is the first to examine the effects of the Kalamazoo Promise on post-secondary outcomes. The paper was written by Brad Hershbein, Marta Lachowska, and me, all economists at the Upjohn Institute.

The Kalamazoo Promise is a simple, generous, and near-universal college scholarship program announced in November 2005. Under the program, graduates of Kalamazoo Public Schools are eligible for scholarships that pay up to 100% of college tuition and fees at any Michigan public university or community college.  (Starting with the graduating class of 2015, some Michigan private colleges are also included.)  The “Promise” has relatively few conditions: students must graduate from KPS, must have attended KPS since at least ninth grade, and must live in the district. There is no high school GPA requirement: students must simply graduate from high school and be admitted to a college or university. The program is a “first-dollar” scholarship program, and so is not reduced by other scholarships.  Scholarships are generous: scholarships are 65% of tuition and fees for students attending KPS since 9th grade, and then go up to 70% for students attending since 8th grade, and so on, with students attending since kindergarten eligible for a 100% scholarship.

The Kalamazoo Promise is funded by anonymous private donors. Its stated purpose is to promote Kalamazoo’s economic development, by attracting parents and businesses to the area in the short-run, and, in the long-run, by increasing the local supply of college-educated labor by increasing the educational attainment of KPS graduates, some of whom will stay in or return to the Kalamazoo area.

Although the Kalamazoo Promise has many unusual features, its effects are highly relevant to ongoing debates about how to increase educational attainment and promote greater economic opportunity and economic equity. The Kalamazoo Promise was the first of many “place-based” scholarship programs. Since 2005, over 30 communities around the U.S. have adopted similar programs, in some cases using public funding or imposing additional restrictions on scholarship eligibility. Can such programs work? The effects of the Kalamazoo Promise are obviously relevant to this growing place-based scholarship movement.

More broadly, there is the issue of how much college costs and college scholarship design matter to educational attainment. Can money make a big difference to college success, at least if money is handed out in a relatively simple and straightforward manner, with few requirements? The Promise’s effects are at least suggestive of whether reduced college costs and more college scholarships can make a difference, although obviously the devil may be in the details of any particular scholarship program.

How did we estimate the effects of the Kalamazoo Promise? Because the Kalamazoo Promise is a near-universal program, it was not possible to do any random assignment experiment. However, the details of the Promise’s design provided a good “natural experiment”. Students are eligible for the Kalamazoo Promise if they started in at least 9th grade, and ineligible if they started after 9th grade.  Changes over time for these two groups help reveal the effects of the Promise.  The paper compared the change in post-secondary success, before and after the Promise, of the “eligible student group” (including pre-Promise graduates who would have been eligible if the Promise existed) with the “ineligible student group”. What we found was an abrupt increase in post-secondary success for the eligible group that began in 2006, the first graduating class that could use the Promise, but no such increase for the ineligible group.  The most plausible explanation for the changing relative success for these two groups is that the Promise’s tuition subsidies helped increase post-secondary success.

Among the estimated effects of the Promise are the following:

  • The Promise is estimated to increase enrollment in a 4-year college by about one-third, from 40% for the comparable group in the pre-Promise period to 53% for the eligible group in the post-Promise period.
  • The Promise increase college credits attempted at 2 years, 3 years, or 4 years after high school graduation by close to 15%. As of 4 years or 8 semesters after high school graduation, these effects correspond to students attempting an additional 2 to 3 college classes.
  • As of 6 years after high school graduation, the Promise is estimated to increase the receipt of any post-secondary credential (certificate, associate degree, bachelor’s degree) from 36% of comparable KPS graduates in the pre-Promise period, to 48% for Promise-eligible KPS graduates in the post-Promise period, an increase of about one-third (12%/36%).
  • As of 6 years after high school graduation, the Promise is estimated to increase the percentage of KPS graduates getting a bachelor’s degree from 30 percent of comparable KPS graduates in the pre-Promise period, to almost 40% for Promise-eligible KPS graduates in the post-Promise period, an increase of about one-third in the number of BA/BS graduates.

The Promise effects are not restricted to more advantaged groups. Although estimates for different sub-groups of KPS graduates are more imprecise, Promise effects appear to be similar for KPS graduates from low-income families compared to KPS graduates from middle-income families. Because baseline college success for students from low-income families on average is smaller, the relative effects of the Promise on college success are higher for low-income students. For example, the Promise is estimated to boost the number of low-income students attending a 4-year college by over 50%, over twice the percentage effect observed for middle-income students.  The Promise had at least as great and sometimes greater effects for non-white students compared to white students. Across gender, the point estimates found statistically significant effects on bachelor’s degree attainment for female students, but bachelor’s attainment effects for males were not statistically significant.

More coverage of this study’s findings can be found at the Upjohn Institute website, by Julie Mack in the Kalamazoo Gazette, and by Ron French in Bridge Magazine.

Posted in Distribution of benefits, Economic development | 1 Comment

Increasing educational performance and reducing educational disparities is more feasible if pursued through high-productivity interventions, including but not limited to early childhood education

On May 27, 2015, the Upjohn Institute released a report on Michigan’s school finance system and how to reform it to improve student performance in Michigan, and lessen disparities among children in various income groups.  The lead author of the report is my colleague Kevin Hollenbeck, and I am one of the co-authors, along with Randy Eberts, Brad Hershbein, and Michelle Miller-Adams.

Although the report is obviously focused on Michigan, the report’s lessons are more generally applicable to school finance reform and school reform throughout the U.S. Our report argues that money does matter to educational performance. More resources will improve student achievement, and can reduce test score gaps between disadvantaged students and more advantaged students. But solving educational problems through increasing spending across the board is expensive enough that in many cases it may not be politically feasible. A more feasible route to educational improvement is to increase resources in a targeted manner: increase spending on educational interventions known to have a high benefit-cost ratio. Such interventions include early childhood educational interventions. For example, high-quality child care and high-quality pre-K programs have been shown by rigorous evaluation to have a large effect on improving future prospects per dollar spent. But other educational interventions also have been shown to increase student achievement by a large amount per dollar spent. These include reduced class size in early elementary school, high-quality summer school for elementary students who are behind, longer school year for high-poverty schools, small group tutoring for high school students who are behind, and high school career academies for students interested in a more career-focused high school education.

It is sometimes argued that money doesn’t matter to educational performance. Michigan’s experience shows that this argument is wrong. Michigan dramatically changed its school finance system with passage of Proposal A in 1994. Proposal A essentially shifted most schools from locally-controlled spending per pupil to a more uniform system of state-controlled funding per pupil. The result was a natural experiment: some low-spending districts, mainly in rural areas, ended up with higher funding per student, whereas other school districts did not. As shown in studies by Leslie Papke and Joydeep Roy, and as confirmed in our report, the districts that experienced higher funding per student showed  improvements in student achievement relative to school districts that did not (Figure 2-1 on page 8 of our report).

However, the influence of money on student achievement is of a magnitude such that reaching educational goals through across-the-board spending increases will often be politically difficult. For example, these estimates of money’s influence suggest that for Michigan to match a leading state such as Massachusetts in student achievement would take an extra $10,000 in annual spending per pupil. To eliminate the achievement gap between low-income students and other students would require spending an extra $19,000 per pupil on low-income students. (Similar results would occur for achievement gaps across income groups in other states.) While one could make a case that such spending boosts would have benefits greater than costs, obviously the costs are large enough that the political feasibility of such funding boosts is doubtful.

However, there are educational policies that improve student achievement and adult outcomes by far larger amounts per dollar spent than across-the-board spending increases. Early-age interventions frequently have higher benefit cost ratios, presumably because younger brains are more malleable, and early learning tends to build on itself and create future learning. Such early interventions include high-quality child care and pre-K, and lower class size in early elementary school. Later-age interventions can also be cost-effective if they are highly targeted on the particular learning needs of students. For example, targeted tutoring or extended school years can work for students who are academically behind, and career-oriented education can help students attracted by that approach to education.

If one asks what boost to the present value of future earnings is brought about by an educational policy, more cost-effective educational policies frequently have benefit/cost ratios in the range of 2 to 1 up to 13 to 1. Such interventions can be over ten times as effective in improving student outcomes as is true for across-the-board spending increases.

The below table is taken from our Michigan report (see Table 5-1, page 44; the version below is slightly rearranged). It shows the increase in present value of future earnings per child for a given educational intervention, compared with the cost of that educational intervention per child. Our report provides references to the research behind these numbers.

Relative Costs and Future Economic Benefits of Various Educational Policies

Policy Effects on Present value of Future Earnings per Child Program costs per child Economic benefit to cost ratio Target group
General school funding effects  $        7,000  $     11,000 0.6 All students
Reduced class-size K-3  $      22,000  $     11,000 2.0 All students
Full-time full-year child care from birth to age 5 (Educare) for disadvantaged families  $     134,000  $     87,000 1.5 Disadvantaged students
Universal full-day pre-K  $      53,000  $     10,000 5.3 All students
Mandatory elementary summer school for one year for children who are behind  $      18,000  $      2,000 9.0 Students who are behind
High school career academies  $      26,000  $      3,000 8.7 Students interested in CTE
5 best school practices (longer school year & school day yielding at least 25% more time, small group tutoring, frequent feedback to teachers, more use of testing to guide instruction, high expectations) $26,000 per year $2,000 per year 13.0 High-poverty schools
1 hour per day math tutoring plus cognitive behavioral therapy for disadvantaged 9th graders  $      54,000  $      5,000 10.8 Students who are behind

As shown in the table, simply increasing educational spending per pupil by $11,000 would be estimated to increase the present value of future earnings per student by a little more than half that spending increase. Education of course has other benefits than increased earnings, such as lower crime, higher civic involvement, etc. With these other benefits, it is quite plausible that dramatic across-the-board increases in educational spending could be justified as having benefits exceeding costs.  Still, across-the-board increases in spending are not the most cost-effective educational policy for boosting future prospects, as shown in the table. Other policies have benefit cost ratios of up to 13 to 1.

In this blog and my recent writings, I have extensively argued for early childhood programs as a way to promote the economic development of the U.S. economy, or for particular states to promote their own economic development. This is not because early childhood programs have the absolutely highest benefit-cost ratios, but rather because these policies combine very high benefit-cost ratios with other advantages.

The policies with the highest benefit-cost ratios are actually later policies that are targeted in some way, either at students who are academically behind, at high-poverty schools, or at students with particular career interests. What is particularly attractive about universal pre-K as an educational policy is that it is perhaps the most cost-effective intervention that is relevant for all students, not just targeted groups of students. This means that universal pre-K can be more easily scaled up to have truly large effects on the overall quality of the labor force of a state or of the nation, and thereby to have truly large effects on overall economic development. (Lower class size in early elementary school also helps improve achievement for all students, but is not nearly as cost-effective as universal pre-K.)

High-quality child care from birth to age 5, similar to the Educare program, is attractive because among all these interventions, it has perhaps the highest estimated gross benefits per individual student. If we want to dramatically affect the life prospects of a student from a high-poverty background, this intervention does the most. Its benefit-cost ratio is lower because its costs per child are so high. However, educational policy is not solely concerned with benefit-cost ratios, but with also achieving large effects per child.

Based on these findings, our report ends up recommending that Michigan increase school funding, but do so in a way that encourages more resources to be devoted to more cost-effective educational policies.  Given the difficulty of increasing taxes to finance public spending increases, a similar policy course may also make sense for other states.

Posted in Distribution of benefits, Early childhood program design issues, Economic development

The adequacy of state pre-K funding for quality and access

The latest edition of “The State of Preschool-2014” was released on May 10, 2015 by the National Institute for Early Education Research. This annual release of data and analysis has become essential to understanding what is going on with publicly-funded pre-K in the United States.

Using this latest edition, in this post I analyze funding for age-4 pre-K, and compare current funding to what would be needed to ensure adequate quality for pre-K for all age-4 participants, and what would be needed to ensure both adequate quality and adequate access to pre-K for all age-4 children in the United States.

Based on the NIEER data, I estimate that in aggregate, total funding for state-sponsored pre-K for 4-year-olds was about $5.2 billion in the 2013-14 school year.  (All dollar figures in this blog post are stated in year 2013 dollars.) This total includes not only state funding for state-sponsored pre-K programs, but also what is known about local and federal funding for such pre-K programs. (An additional note for data wonks: To get this estimate, I used NIEER estimates of total pre-K funding per child by state, and multiplied it by the number of 4-year-olds in pre-K in each state, and then summed this product over all states. Because the NIEER estimates of per-child funding included both 3-year-olds and 4-year-olds, the implicit assumption is that this funding per child did not differ much between 3-year-olds and 4-year-olds, or that such differences canceled out when summed over states. )

NIEER also estimates what it would take for the state to have adequate resources per child to consistently deliver a high-quality program. The estimates of the per-child funding are derived from estimates from the Institute for Women’s Policy Research, in their 2008 report, “Meaningful Investments in Pre-K: Estimating the Per-Child Costs of Quality Programs”. For each state, these estimates of per-child funding reflect the mix of half-day vs. full-day and other length of program design features of the state’s pre-K programs – that is, the required per-child funding for quality would be much greater if a state had all full-day slots vs. all half-day slots. The estimates are then adjusted to 2013 national dollars, and also adjusted for cost differences across states, as described in NIEER (2015, p. 18), using estimates from Lori Taylor.

If we add how much it would take to consistently deliver quality programs for the CURRENT number of 4-year-old children served in each state, we come up with a figure of $7.4 billion. Therefore, current funding of $5.2 billion would be needed to be increased by $2.2 billion, or over 40%, simply to consistently deliver a quality program to all 4-year-olds being served by state-sponsored pre-K, in the mix of half-day versus full-day programs that is currently being delivered.

(Another data note: This calculation simply increases all states that are below the needed quality spending level per child to the needed spending level per child. States for which funding is currently above the estimated required funding level are not reduced. If we simply adjusted all states up or down to the estimated required spending level for quality, total required funding would be somewhat lower, at $7.1 billion.)

What would it take to offer universal access to quality pre-K to all 4-year olds in the United States? This depends upon what one assumes about how many families with 4-year-olds would participate in a program that offers universal access, but obviously does not require participation, as pre-K is a voluntary program. It also depends upon what one assumes about the length of the program in terms of full-day versus half-day.

Suppose we assume that the program is a full-day (six hour) academic year program, with a class-size ratio of 15 students to 2 teachers, and with the lead teacher paid wages and benefits similar to what is paid to public school kindergarten teachers.  Suppose further that we assume that in a voluntary program that offers universal access, the percentage of 4-year olds in state-sponsored pre-K would be similar to what it is today in Oklahoma, at 76.4% of all 4-year-olds. The remainder of families would have their 4-year-olds in Head Start, in private preschool or child care, or at home. As was done with NIEER, and as I have done in previous work, I rely on the IWPR cost figures.

The resulting estimate is that full-day universal-access high-quality pre-K would cost $31.1 billion per year. This is an increase of $25.9 billion over current state-sponsored pre-K funding. Although $26 billion is a great deal of money, this amounts to less than 2% of overall state and local government tax revenue. (See p. 70 of my book, From Preschool to Prosperity.)

However, the cost of universal access to pre-K could be considerably less if we assumed the program would not be full-day for all. For example, suppose we assume that the program would have the mix of full-day versus half-day that is true of current state-sponsored pre-K programs. Then the estimated total cost of universal access to pre-K would be $19.8 billion per year. This amount would be sufficient to enroll 76.4% of all 4-year-olds in a program whose funding allowed high-quality, but with the program mix skewed mostly to programs offering half-day services.

In the real world, I think that to achieve universal access, and elicit adequate participation from all income groups, it might be necessary to expand on current full-day options. Therefore, the best estimate is that a universal program offering some mix of half-day versus full-day services would probably cost between $20 billion and $30 billion per year.

How do these figures compare with where states were before the aftermath of the Great Recession, and the expiration of the federal stimulus, led to state budget cutbacks? In NIEER’s data, it appears that state pre-K funding was significantly cut after the 2009-10 school year. So, let’s look at funding in the 2009-10 school year, using estimates from the 2010 NIEER Yearbook.

In 2013 dollars, total funding in 2009-10 for state pre-K programs for 4-year olds was $5.6 billion. So funding in real terms in 2013-14 had dropped by $0.4 billion, from $5.6 billion to $5.2 billion.

In 2009-10, the total funding estimated that was needed to consistently deliver quality services was $6.1 billion. This is only $0.5 billion above the actual funding. In contrast, the “quality funding” gap for 2013-14 was $2.2 billion ($7.4 billion versus $5.2 billion). The increased quality funding gap, going from 2009-10 to 2013-14, is largely because the mix of pre-K services has shifted to either more hours or days of service, which increases the needed funding level per child.  A more minor factor is the number of 4-year-olds served in state pre-K funding increased slightly, from 1.11 million in 2009-10 to 1.16 million in 2013-14.   States have not increased real funding to match the expanded hours of service per child and the increased number of children served.

What would have been needed in 2009-10 to finance universal pre-K? Using assumptions similar to what was used for 2013-14, the estimated cost, in 2013 dollars, of universal full-day pre-K would have been $32.5 billion. This is slightly higher than the estimated cost of $31.1 billion in 2013-14, largely because the number of 4-year-olds declined slightly from 2009-10 to 2013-14.  However, the costs of universal high-quality pre-K, if we assumed the mix of part-day versus full-day services actually provided in 2009-10, would have been $18.1 billion, again in 2013 dollars. Overall, it seems likely that a real world high-quality universal pre-K program in 2009-10 would have cost somewhere in the range from $20 billion to $30 billion, similar to the estimated cost in 2013-14.

What do these figures indicate? First, we are still well-short of the resources needed to have full access in all states to high-quality universal pre-K. We would need somewhere between $15 billion and $25 billion in additional resources to achieve universal access to high-quality programs.

Second, there is a growing gap between current funding levels and what is needed to fund the current numbers of children and the current mix of services in a high-quality manner. The main concern is that under-funding of pre-K will reduce the effectiveness of pre-K programs in changing a child’s future life course. A secondary concern is that under-funding of pre-K may undermine public support for expanded pre-K.

Both access and quality matter greatly to the aggregate economic impact of pre-K. As we continue to recover from the recession, all levels of government need to devote additional resources to address both access and quality issues in current pre-K funding.

Posted in Early childhood program design issues

Forum discusses universal versus targeted preschool, age 4 versus earlier age programs, and public school versus private provision of preschool

On May 5, I spoke at in a forum in Minnesota on issues in designing preschool programs. The forum had six speakers with diverse perspectives on how to design early childhood programs.

The context for the discussion was a debate about the future course of Minnesota preschool policy. The policy choices facing Minnesota are similar to the choices facing other states, and therefore the Minnesota debate is relevant to all state and local areas considering expansions of their early childhood education efforts.

Minnesota currently has quite modest funding for preschool. The state’s current approach to preschool is somewhat unusual. The state funds scholarships for low-income children to go to both private and public preschools at ages 3 and 4.  At current funding levels, these scholarships only go to perhaps 10% of the eligible low-income children, and have a maximum size of $5,000, which limits what proportion of costs are covered. The state also has a “Parent Aware” rating system to help inform parents of the importance of preschool quality, and the quality features of different preschools.  The current Minnesota model is to create an informed market for quality preschool among low-income parents, with some funding to help low-income parents to pay for at least part of the costs of quality preschool.

Minnesota Governor Mark Dayton has proposed a significant expansion of Minnesota’s early childhood education efforts. The main increase in funding would go to help support universal pre-K for 4-year-olds. This funding would go directly to local public schools, although the public schools in some cases might choose to contract out to private preschools to provide preschool services.  The state would also double funding for early learning scholarships for low-income children, but extend the age eligibility for such scholarships to birth to age 5.

The coalition that has backed Minnesota’s early learning scholarships would prefer different uses of any expanded early childhood funding.  These groups, which include some business interests, some private charities, and some private preschools, is advocating for much larger increases in funding for the existing system of early learning scholarships for low-income students. In addition, this coalition would want larger funding increases for earlier age programs for low-income students, such as home visiting programs to improve parenting.

At the forum, some of the perspectives of the “Minnesota model” coalition were expressed by members of the speakers’ panel, including Art Rolnick, former director of research for the Minneapolis Federal Reserve Bank, and currently co-director of the Human Capital Research Collaborative at the Humphrey School of Public Affairs of the University of Minnesota. Some perspectives of the coalition were also expressed in audience members’ questions and comments.

Some of the concerns expressed at the forum about Governor Dayton’s program included the following:

  • There are concerns about prioritizing universal access to preschool over more income-targeted approaches. The argument made by Art Rolnick at the forum is that the highest return to early childhood investments comes from investments in low-income children, not middle-class children. The focus should be on closing the achievement gap between low-income children and other children.
  • There are concerns that putting most of the funding into age 4 preschool doesn’t put a sufficient priority on earlier-age (birth to age 3) early childhood programs. Art Rolnick argued that age 4 preschool was too late for many low-income children, and that based on the brain science, the child’s brain is more malleable at earlier ages, and therefore we would get the greatest effects on closing the achievement gap by investing earlier in low-income children.
  • There are concerns that utilizing public schools to deliver preschool will leave out private preschools. Although public schools can contract out, they may choose not to do so. Leaving out private preschools was argued by Rolnick to decrease parent choice. Some private preschools at the forum were concerned that greater reliance on public schools for age 4 preschool would cause financial problems for private preschools, which were argued to use age 4 preschool revenue to cross-subsidize more expensive care at earlier ages.

I was asked by the forum organizers to focus on why I favor universal over income-targeted preschool.  A previous blog post presented my detailed prepared remarks on this topic.  The essence of my argument was two points:

  • The research evidence suggests that preschool for middle-class kids has similar benefits to preschool for low-income children. Preschool for both income groups has very high benefit-cost ratios. Therefore, any state wanting to maximize its future should invest more in preschool for both low-income and middle-class children.
  • Universal access to preschool has some practical advantages. Most notably, universal pre-K is likely to have sustained broad political support for maintaining an adequate number of preschool slots and adequate preschool quality.

Art Rolnick brought up a counter-argument at the forum. He argued that the empirical evidence I presented only showed that the direct earnings benefits of preschool for middle class children and low-income children was similar. But he argued that it was reasonable to believe that some social benefits, such as lower crime and reduced special education costs, might be greater for preschool for low-income children.

My response to this counter-argument is as follows. There is actually no empirical evidence on whether preschool’s benefits in reducing crime and special education costs are greater for low-income children. It is a reasonably plausible assumption, but it has not been shown to be the case in empirical studies.

In addition, there are other possible social benefits of preschool that might imply greater social benefits from preschool for middle-income children. For example, there is empirical evidence that there are substantial economic spillover benefits for the entire economy from increasing the percentage of workers with college degrees, benefiting all workers, not just those who get a college degree. But the empirical evidence does not support such economic spillovers from more high school degrees. If preschool for the middle class has more of its earnings effects through helping children who would have been high school grads to become college grads, while preschool for low-income children has more of its earnings effects through helping children who otherwise would become high school dropouts to become high school graduates, but not necessarily college graduates, then preschool for the middle-class might have greater “skill spillover” benefits for the entire economy. There is no direct empirical evidence for these greater skill spillover benefits for middle-class preschool, but it seems as reasonable an assumption as the assumption that the anti-crime benefits of preschool are greater for low-income preschool.

On the issue of age 4 preschool vs. programs at earlier ages, I argued in discussion at the forum that although earlier-age programs can achieve higher effects in increasing a child’s future earnings than age 4 preschool, possibly because the child’s brain is more malleable at earlier ages, the benefit-cost ratio is higher for age 4 preschool than for earlier-age programs. I have argued this position before, and similar findings have been reported by Reynolds et al.  Why is this the case? Moving to earlier-age programs, we do get higher effects on earnings, but costs per child go up even faster. Child care programs at ages 1 and 2 must have lower child to staff ratios to be high-quality than is true of age 4 or age 3 preschool. Parenting programs such as the Nurse Family Partnership must use a lot of 1 on 1 staff time with parents to be effective. Preschool at age 4 or age 3 may be a “sweet spot”, where the child’s brain is still malleable enough to have significant effects, while children are old enough to have larger class sizes, which lowers costs per child.

On the private versus public preschool issue, I argued in discussion at the forum that either a public school approach or a private preschool approach can work. For example, both Oklahoma and Georgia run preschool programs with some evidence of success, yet Oklahoma runs preschool primarily through the public school system, with some contracting out, while Georgia uses a charter school approach. Furthermore, in the broader K-12 area, the evidence suggests that market competition via charter schools has not resulted in clear dramatic improvement in average school quality. Some charter schools are better than the average public school, and some are worse.

Therefore, Minnesota (or other states) can use any mix of public versus private approaches to delivering preschool, and still get results. Public preschool might have some advantages in tying preschools more directly to the K-12 system, which will make transitions to K-12 somewhat easier. Preschool in the public schools might also strengthen the public schools as an institution. Public schools might tend to be more universal and less selective, while some private preschools might be more selective in which students they try to serve, although this selection can of course be regulated. On the other hand, private preschools might tend to be more innovative, and might tend to offer more diversity of curriculum.  But public preschools can be encouraged to be more innovative and diverse in curriculum choices with appropriate state policies.

One point I made at the forum, and more extensively in private conversations in Minnesota, is that the choices facing Minnesota are broader than the contrast between Governor Dayton’s original proposal, and the expansions favored by advocates for the scholarship model. For example, there are preschool expansions that would be more “universal” than Minnesota’s current scholarship system, yet not fully universal. We could imagine funding preschool fully for students up to 300% or 400% of the poverty line, and charging fees above that family income level. Or we could imagine funding universal preschool for school districts exceeding some minimum percent of students eligible for free or reduced price lunch, but providing more limited funding for school districts with more affluent student bodies, and allowing those more affluent school districts to decide whether they wanted to provide the local funding needed to make preschool universal, or instead wanted to charge fees.

As another example, we could imagine the state providing some funding for public school provision of preschool, but also significantly expanding funding for private preschools at age 4. The state could directly allocate some share of the funds to private preschools, or require local school districts to allocate some share of funding to private preschools.

A final comment is on Art Rolnick’s argument that the main focus should be on closing the achievement gap between disadvantaged students and other students. In general, I think it is more appropriate for public policy to be based on multiple goals rather than exclusive focus on one goal. Lowering the achievement gap to help the poor is one worthy goal. Increasing the skills and earnings of all workers, including the middle-class, as part of an effort to improve the overall economy, is another worthy goal. Public policy towards early childhood programs, and other public services, is more likely to be effective and gain greater sustained political support if it tries to balance a variety of worthy goals rather than allowing one worthy goal to trump all other worthy goals.

It is tempting for advocates for the poor to adhere to the doctrine that all that matters for public policy is what public policy does for the poor. But a democratic government that seeks to raise taxes from a broad range of people , and promises to provide useful public services to a broad range of people, must have a broader vision. The interests of the poor should perhaps receive a greater weight in public policy, but that weight should not be 100%. Furthermore, if the interests of the poor are prioritized within a universal system that provides some benefits to all, public support will be greater. I suspect that Social Security, with its broad public support due to its near-universal benefits, but with a formula that favors low-wage workers, has done more to reduce poverty in the U.S. than income-targeted welfare programs, which are highly unpopular.

Putting all the weight on the poor might appeal to some conservatives and some business leaders as a way to hold down taxes, because enhanced spending is only required for a relatively small percentage of the population. But if broad public services such as universal preschool provide economic benefits greater than costs, then this is too narrow a view. Universal preschool that includes the middle-class will expand the U.S. economy more than income-targeted preschool. The initial costs of universal preschool will be higher, but in the long-run, the economic pie will be larger, which will increase business sales and profits, and provide a broader tax base that will allow improved public services combined with lower tax rates. The long-run interests of the business community, and of those favoring low taxes, are better served by the universal preschool approach, because it has larger effects on long-run economic growth.

States face a wide variety of choices in designing their early childhood education efforts. A pragmatic political strategy will forge appropriate compromises in these design choices between different policy goals. There is not one “ideal system” for early childhood policy.

Posted in Distribution of benefits, Early childhood program design issues