Moving the U.S. towards a more universal, high-quality early education system

Posted on May 20, 2013 by

Lane Kenworthy, a well-known comparative sociologist of inequality issues at the University of Arizona, has a thought-provoking blog post on why the U.S. should more towards a high-quality early education system.

Based on his own extensive knowledge of Scandinavian social welfare systems, Kenworthy advocates that the U.S. move towards an early childhood system similar to the systems used in Denmark and Sweden.  This system would include: paid parental leave during a child’s first year; high-quality child care and preschool from ages 1 to 5, with parents paying fees capped at 10% of income, and with the rest of the costs of this high-quality system being supported by a government subsidy. He roughly estimates that such a system would cost about 1% of U.S. GDP, or $160 billion in annual spending.

I agree with Kenworthy’s policy goals, and think he provides some valuable comparative evidence, as well as summarizing much research on this issue. Therefore, perhaps the most important point of this comment is that you should read his blog post and the research underlying Kenworthy’s blog post.

I have a few comments on Kenworthy’s article that I would add.

First, Kenworthy comments that it’s too early to tell whether the universal preschool programs in Oklahoma and Georgia have had long-run effects. I would add, as I’ve detailed in a previous post, that it’s more difficult than our intuition would tell us to detect statistically significant effects of even large benefits from case studies of the experiences of one or two other states. There are simply too many factors driving aggregate educational and economic performance.

Therefore, evaluations of the quality of the research evidence for early childhood programs should rest more on well-done studies of what happens to program participants and their families compared to similar non-participants.  Aggregate studies of impact are more difficult to get precise results.

Second, Kenworthy wonders whether we can detect effects of universal early education systems on long-run growth. I regard the issue of whether early education, or education in general, affects growth rates, as opposed to levels of income and earnings, as of great importance. My own research has been quite conservative and simply assumed that improving job skills via early childhood education has effects on productivity levels and earnings levels.  But if one instead assumes that these programs affect growth rates in productivity and earnings, then the resulting long-run returns to these programs can be many multiples of what I assume. This is documented in the work by Bill Dickens and his colleagues in applying various economic growth models to early childhood programs.

The problem is that such effects on economic growth are quite lagged, and therefore it will always be hard to link economic growth effects with a specific policy. However, even a very small effect on annual economic growth rates will over the long-run yield huge benefits. Therefore, I regard trying to detect such long-run growth effects a topic worthy of sustained research attention.

Third, Kenworthy argues that in addition to government subsidies for early education, we also need government to directly provide early education, because “that’s the only way to guarantee universal access to preschool and care that’s above an acceptable quality threshold.” I don’t know if the research evidence for this statement is clear. I could imagine a charter system or voucher system for early education that could be universal and of high quality. The question is whether the politics of charter systems or voucher systems leads to pressure to water down quality standards and universality, as such systems can be gamed to provide larger benefits for middle-class groups and private providers.  I would be willing to be persuaded that some public provision is essential, but I think this requires more research evidence and a more extended argument.

Finally, I would argue that although a universal system from birth to age 5 is desirable, the best in this case may be the enemy of the good. I think there is a significant argument that the goal of a universal early childhood system may need to be reached by gradual steps towards that goal. A reasonable first step may be to move towards universal access to full-day preschool at age 4, which would cost less than one-fifth of the price tag for Kenworthy’s ideal system. The lower price tag makes this first step more politically achievable.

Furthermore, the evidence suggests that preschool by itself probably has among the highest benefit-cost ratios for effects on child development for a wide variety of children. Rates of return for child development effects of child care are certainly high enough to justify public subsidy, but tend to be somewhat lower than for preschool because of the high cost of comprehensive child care for several years. Furthermore, the child development benefits of child care subsidies may be more targeted on the disadvantaged that is true of preschool, which provides services that are difficult for almost all parents to provide on their own.

At the same time, we should keep the ideal of a universal comprehensive early childhood system in mind. What is politically practical changes with the times. There may be opportunities that arise to enhance the quality of America’s child care system, and to better manage and coordinate the complex array of child care subsidies through both government agencies and the tax system. Kenworthy’s article provides a good description of an ideal that is attainable, if we have the political will.

Posted in Early childhood program design issues, Early childhood programs, Economic development | Leave a comment

Helping child development and long-run economic development by helping low-income parents

Posted on May 15, 2013 by

Pediatrician Perri Klass wrote an article in the New York Times on May 13, 2013, that focused on the growing interest by pediatricians and other medical professionals in child poverty as a national problem. She argues that evidence suggests that child poverty damages child development and hence the child’s long-run potential as an adult. Poverty may damage child development through producing many stresses on children. Such stresses include frequent housing moves, inadequate nutrition, too little access to health care, and family conflicts.

There is some good research by economists that tries to quantify the relationship between child poverty and future adult outcomes for the child. This research focuses on what child poverty means for the child’s future earnings.  For example, there is good recent work by Greg Duncan and his colleagues that looks at effects of childhood poverty on future adult earnings, and on the child’s academic achievement, which will predict future earnings.

Duncan et al.’s work finds that added parental income makes a bigger difference for a child’s future adult earnings for children from low-income families.  Duncan et al. also finds that anti-poverty experiments that boost family income appear to boost a child’s academic performance.

Of particular interest to early childhood advocates is the finding that a child’s future adult earnings are more affected by the income of the child’s parents when the child is ages 0-5, than by income in later childhood years. Once one controls for family income in early childhood, the family’s income when the child is ages 6 through 15 has little impact on the child’s future adult earnings.

The special importance of early childhood family income supports the notion that early childhood is a critical developmental period.  During early childhood, the economic, social, and educational environment experienced by the child seems especially likely to lead to large permanent changes in life course.

Most of these effects of early childhood family income on the child’s future adult earnings occur due to effects on annual adult work hours. This could be explained if early childhood experiences have more profound effects on future behavior and work habits (“soft skills”) than on more narrowly defined hard skills.

Duncan et al.’s work can be extrapolated to calculate how much the present value of the child’s adult earnings increases for a given increase in parental income.  Depending upon what estimates are used and what assumptions are made, the expected present value of the child’s future adult earnings increases somewhere between 1.27 to 2.88 times the boost to the parent’s income.  (See below for the gory details on how these calculations are made.)

To boost parental income by $1 may cost the government more than $1 if done through some income transfers (Bos et al., 2007), but could cost less than $1 if done through wage subsidies that encourage work (Eissa and Hoynes, 2011). Therefore, if we were evaluating some government policy to boost children’s future earnings by boosting the income of their parents, the ratio of the child’s future earnings gains to the government’s costs could be less than 1.27 or more than 2.88, depending upon the efficiency of the policy and the assumptions made.

In my work on early childhood programs and local economic development, boosts to future per capita earnings are my definition of “economic development benefits”. (The rationale for this definition is that such boosts to per capita earnings are the main social benefit from the incentive programs we label economic development programs.)  Suppose a government income transfer program for parents was perfectly “efficient” – that is, it boosted parental income during early childhood by a dollar per dollar of government costs. Under that assumption, this parental income transfer program would have effects on child development that would yield a ratio of national economic development benefits to government costs of somewhere between 1.27 and 2.88.

Therefore, boosting parental income also deserves policy attention as an early childhood strategy. Investing in helping parents while their children are in early childhood will boost national economic development by boosting the child’s future earnings per capita.  Such policy proposals may have net benefits even if evaluated solely on the basis of their benefits for the child’s future earnings. This omits other possible benefits of boosting parental income, most obviously the benefits for the parents.

Such a strategy reinforces the need to expand early childhood programs. Duncan’s work suggests greater child development benefits from boosts to parental income when children are 5 years old or less. How can strategies to help parents target parents with children in that age range? One obvious way to do so is by providing extra subsidies and support for child care, preschool, and parenting support for families with children in this age range, who also have the greatest need for such services.

Early childhood programs that are targeted at the disadvantaged can be seen as a two-generation anti-poverty strategy that boosts early childhood development both by boosting parental real incomes and by providing educational services to children.

(Notes to hard-core policy wonks on how calculations were made. I took Duncan/Ziol-Guest/Kalil  (DZK) estimates from Table 2 on effects of early childhood income on adult earnings. They estimate that an extra $10,000 in family income per year from ages 0 to 5 will increase the natural log of future income by 0.52.  I calculated the present value of the future earnings of children from poverty backgrounds to be 52% of the average earnings for all persons, based on Appendix A in DZK. I used data from Chapter 12 of my book Investing in Kids to calculate that the present value of future adult earnings for a typical person, in 2007 dollars, using a 3% real discount rate, and evaluated when the person is age 4, is $863,000. This assumes annual secular real wage increases in the national economy of 1.2%. Multiplying this present value by the assumption that persons from poverty backgrounds will earn 52% as much as the average person, yields a future present values of earnings for persons from a poverty background of $432,000. The dollar value of the change in future adult earnings was calculated by adding and subtracting 0.26 from the natural logarithm of future adult earnings, to reflect a 0.52 change in log earnings around the mean. This was then compared with the present value of adding $10,000 in family income for each of the 7 years from the prenatal period to age 5, converted from the 2005 dollars used by DZK to 2007 dollars, and discounted also to age 4.  The result is that the ratio of the increased present value of the child’s future earnings to the present value of the shock to parental income is 2.88.

For the calculations using changes in children’s test scores, I used the Duncan/Morris/Rodrigues (DMR) estimates in Table 5 that an extra $1000 in parent’s annual income increased a child’s achievement by 0.06 standard deviations. I used Chetty et al.’s estimates, as explained in Bartik/Gormley/Adelstein, that a 1 percentile boost in student achievement increase will increase future adult earnings by 0.495%. Based on Reardon, I assume that the low-income child’s typical achievement gap from the median child will be 0.50 standard deviations.  An improvement from 0.50 standard deviations below the mean to 0.44 standard deviations below the mean boosts achievement in a standard normal distribution by 2.14 percentiles. This percentile boost was multiplied by the 0.495% boost in earnings per percentile and then by the present values of adult earnings of low-income children that were assumed in the previous paragraph.  Finally, the experimental data used in DMR seem to typically observe the effects of income boosts at the end of around 3 years. I assumed this period was from ages 2 to 4 for the child, and calculated the present value of this income boost as of age 4. I also adjusted the income boost from the 2001 dollars used by DMR to 2007 dollars, to be comparable with the adult earnings data. The resulting ratio of the boost in the present value of the child’s future adult earnings, to the boost in the present value of the parent’s income, is 1.27.

The latter estimates might be lower for three reasons. First, the DMR estimates include boosts in parental income when the child is older, which is shown in the DZK paper to have lower effects on the child’s future earnings. Second, my extrapolation from the DMR paper relies on effects on educational achievement to predict future earnings, and there might be other channels by which parental income would influence a child’s future earnings.  Third, the DMR estimates could be better estimates because they might better control for omitted variable bias than the DZK estimates.  The DMR estimates are instrumental variable estimates using experimental assignment as instruments. The DZK estimates control for omitted variable bias using powerful controls, such as later parent income, but perhaps these controls are insufficient. The first two factors argue that the DZK paper may provide better estimates of the effects on future adult earnings of parental income in early childhood. The third factor argues that the DMR estimates may be better estimates. )

Posted in Distribution of benefits, Early childhood program design issues, Early childhood programs | Leave a comment

Is Michigan’s pre-K expansion designed for success?

Posted on May 14, 2013 by

I have previously discussed Governor Snyder’s proposal to expand Michigan’s pre-K program, called the Great Start Readiness Program (GSRP). Since then, different versions of this expansion have passed both the Michigan House and Senate.  However, the final compromise has not yet emerged.

Governor Snyder proposed expanding GSRP funding by $65 million, from $110 million to $175 million. The Senate keeps this gross funding increase, while the House whittled the funding increase down to $38 million. However, there also are important substantive changes that these various bills make to the GSRP program.

Research suggests that the substantive changes made by both the House and Senate may weaken the program. As discussed in my previous post, GSRP has had strong research evidence of success. However, underfunding of the program over the past 10 years has threatened the program’s success.  Governor Snyder’s proposals took some modest steps to expand per-pupil funding. The Michigan House and Senate are cutting back on the Governor’s proposal, and adding in other requirements that are problematic in an under-funded program.

Here are some concerns:

(1)    Quality costs money.  Michigan isn’t paying enough to consistently expect quality results, and the House and Senate changes aren’t helping.  GSRP currently provides funding for half-day slots at $3,400 per slot. Research suggests that this isn’t enough to consistently get high quality slots, which currently almost certainly costs more than $4,000 per slot, and probably closer to $4,500 (see my previous blog post for a discussion of this research evidence). It also is less than Michigan’s historical funding for GSRP, which over the program’s history from 1991 to 2004 averaged, in today’s dollars,  after adjusting for inflation, $4,300 per slot.

Governor Snyder proposed increasing the funding per slot to $3,625, which is the first real per-child funding increase for the program in 12 years. This did not move funding up to the program’s historical real average, or to what would likely be needed to ensure quality results, but it at least was a meaningful step. The House-passed bill increases funding per slot, but only to $3,500 per slot, which barely covers annual inflation. The Senate-passed bill keeps the current funding of $3,400 per slot.

At $3,400 or $3,500 per slot, the only way to ensure quality results is for local entities administering the program to cross-subsidize the program with other revenue. This is increasingly difficult for local school districts to do, given other budget problems facing many Michigan school districts. And cross-subsidization is almost impossible for most private pre-K providers to do.

The consequence is that this low level of funding makes it more difficult for GSRP providers to deliver quality results. The low level of funding also may make local school districts and private providers more reluctant to be active participants in expanding the program.       

(2)    Low funding makes it difficult to meet the revised program’s goals of expanding private pre-K participation.  The Governor’s proposal, as well as the Senate version, requires that 20% of funding go to private providers.  The House version increases this percentage to 30%. This requirement is difficult to combine with low funding per slot and expectations of consistently high-quality programs on a large scale.

While private pre-K programs can provide quality pre-K services, and give parents more choice, these programs have more limited options for cross-subsidizing the program. It is certainly possible for a private pre-K program to on a limited scale find pre-K teachers who are quality teachers who are willing to work for low salaries.  It is less realistic to expect this to happen on a large scale.

Therefore, the 20% or 30% requirement, when coupled with low funding per slot, raises the possibility that some private pre-K providers will not be able to provide GSRP’s customary level of quality. In that case, the intermediate school districts who are allocating funds will be faced with some difficult choices. There are some provisions for state waivers for these percentage involvement levels for private providers, and such waivers are helpful, but the concern is that intermediate school districts may feel some pressure to fulfill the 20/30% requirement even if this does not maximize program quality.    

(3)    The Senate and House bills both have some language that attempts to do more income targeting of the GSRP program, but which may end up stigmatizing the program and limiting positive peer effects.

The program currently requires that 75% of participating children must be below 300% of the poverty line. (Children above 300% of the poverty line must have at least two “risk factors” to be eligible.) The House bill requires that 80% of participating children must be below 200% of the poverty line, with a sliding fee scale required beyond 200% of the poverty line.  The Senate bill requires that 100% of participating children must be below 300% of the poverty line. (The Senate has language about sliding scale fees beyond 300% of the poverty line, which is difficult to interpret.) The Senate bill also has a somewhat complex system of prioritizing children based on how far their family’s income is below 300% of the poverty line.

On the one hand, given scarce funds, we would like to allocate those funds to children in higher need. On the other hand, we know that there are positive peer effects in preschool. Children do better in an income-integrated program. Parents and the general public may have greater support for a program that potentially serves a broader mix of children.

What might be considered based on research to improve the GSRP program? I have three suggestions.

First, we should consider significantly increasing per-child funding for GSRP both for 2013-14 and 2014-15 to get the program back to closer to the $4,300 per child real historical level of funding for the program. Research suggests that this is what is needed to realistically ensure quality on a large scale. It is also what is needed to involve quality private sector providers on a large scale.

Second, authorize intermediate school districts or counties to ask for voter approval for permanent millages to supplement state-provided GSRP funds and to provide for early childhood program needs in preschool, child care, parenting programs, and other areas.  This is particularly important if the state is reluctant to expand its per-child funding. There is nothing wrong with local funding being an appropriate component of the funding for GSRP. But there needs to be some local revenue source for such funding. Allowing intermediate school districts or counties to supplement such funds allows for some local discretion in the per-child funding for GSRP and the number of slots provided. Furthermore, this funding could also deal with the many other early childhood needs other than preschool for 4-year-olds.  As outlined in my book, Investing in Kids, a variety of child care and parenting programs have shown good evidence of success.

Third, the state might want to do targeting by requiring a certain percentage of the state funding to go to children under a particular income level rather than a certain percentage of slots. If coupled with sliding fee scales, this would allow programs to include children from broader income levels, as long as the government subsidy for such children is not excessive. This would target government funds while allowing the positive peer effects that research has suggested from income-mixed classrooms.

State investment in quality pre-K programs can help enhance state economic developments. But to increase state earnings per capita, these investments need to be quality pre-K programs.  More slots alone are insufficient. Quality depends in part on regulatory requirements, and training and education. But such requirements should be accompanied by adequate funding, and by a regulatory structure that allows such desirable components as income-mixed classrooms.

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Judging from reactions to my TED talk, here are some common misunderstandings about pre-K research

Posted on May 13, 2013 by

As mentioned before, TED decided to highlight my TEDx talk from last year as a TED “talk of the day” for May 6. This has since led to 132,000 (and counting) views for this talk.

I found the comments on the talk of interest. Many of these comments reflect common misunderstandings of the research evidence for pre-K’s benefits. I responded to some of these comments at the TED website, but let me summarize some of the key points here.

1. We have good evidence that pre-K actually causes better outcomes for former participants, because many research studies have good comparison groups.  Several commenters argued that better parents will send their kids with preschool, therefore evidence that kids with preschool do better in later life does not mean that preschool caused these differences.

But the research evidence on the benefits of pre-K does not rely on simple comparisons of kids with pre-K vs. kids without pre-K. Rather, this research relies on studies in which the treatment and comparison group are quite similar except for access to pre-K.  

This research evidence includes studies (Perry, Abecedarian) that use random assignment to determine access to pre-K, which means on average we would expect both the treatment and control groups to be similar in all pre-existing observed and unobserved characteristics.  Some studies compare children in similar neighborhoods with different access to pre-K (e.g., Chicago Child-Parent Center study). Some studies compare siblings, one of whom attended pre-K, and the other who did not attend pre-K (e.g., Deming and Currie et al. studies of Head Start).  Some studies compare counties with similar poverty rates that had different access to pre-K because of federal funding policies (Ludwig and Miller). Some studies compare students who just missed the age-cutoff for pre-K the previous year, and are just starting pre-K, with similar aged students who just made the age cutoff the previous year, and therefore have completed pre-K and are starting kindergarten (e.g., many state pre-K studies, of West Virginia, Michigan, Oklahoma, New Jersey, South Carolina, New Mexico, Arkansas,  and Tennessee, and studies of Tulsa and Boston).

Because all of these studies are comparing similar children, the short-term and long-term benefits found for children who attended pre-K are plausibly attributable to pre-K, not pre-existing differences.  We know more about whether pre-K works than about whether 3rd grade works. For 3rd grade, we have universal access. It would be unethical to flip a coin and deny some child access to 3rd grade in order to facilitate a research project. In contrast, for pre-K, we have natural and planned experiments in which access to pre-K services has varied for otherwise similar children.

2. The evidence for the long-term benefits of pre-K for middle-class children is more indirect than the evidence for low-income children, but the most consistent interpretation of the research data is that education-oriented pre-K programs have broad benefits for children from many income groups.  Several commenters argued that the main long-term studies of pre-K, such as Perry, Abecedarian, and Chicago CPC, are for programs that serve disadvantaged children, and therefore these studies do not provide direct evidence for long-term benefits of pre-K for middle class children.

However, we have good evidence for the short-term benefits of pre-K for middle class children, for example from Tulsa and Boston. These short-term test score gains are similar for middle-class and low-income children.  There also is one random assignment study of middle-class children that shows some evidence of test score gains. State pre-K studies include states with universal (Oklahoma) or relatively broad criteria for pre-K eligibility (Michigan, West Virginia), and such states do not seem to show significantly lower short-term test score effects of pre-K than states with more targeted programs.

Furthermore, research by Chetty et al. suggests short-term test score gains will have true causal effects in increasing adult earnings.  Combining these two lines of research (pre-K yields similar test score effects for low-income and middle class children, test score gains in kindergarten lead to higher adult earnings), a reasonable inference is that pre-K will produce adult earnings gain for middle class children.  

Middle class and upper class families certainly seem to believe that preschool will help their children, as pre-K enrollment rates for families in the top quarter of the income distribution tend to be 10 to 20 percentage points higher than for families in the bottom half of the income distribution (Duncan and Magnuson, 2013).

If pre-K’s effects are in part due to effects on social skills or soft skills of getting along with peers and teachers and other authority figures, then it is reasonable to expect pre-K to have benefits for middle-class children. Skills of getting along with peers and outside authority figures are hard to develop without the experience of a formal group setting.  

It would be nice if we had random assignment evidence of the long-term effects of preschool for middle class children. But given that such a study has not been done, and is unlikely to ever be funded, policymakers must make decisions on the weight of the available empirical evidence. This evidence suggests that preschool has broad benefits that include many middle class children.

Finally, it should be recognized that according to the Current Population Survey, a little less than one-quarter of all U.S. children under the age of five are in families below the poverty line, and a little under one-half of all U.S. children under the age of five are in families below 200% of the poverty line. Therefore, even a pre-K program that “targeted” poor and near-poor children would have to serve close to half of all four-year-olds.  

3. Pre-K probably has positive spillover benefits that exceed its individual benefits.  One commenter argued that the individual benefits for pre-K does not mean it has a collective benefit, as part of the individual benefits may occur due to some kids getting a “kick start” to do better than the other kids in their class in the competition for being recognized as a good student and thus developing self-confidence.

But this ignores possible positive spillovers. If more kids have higher academic skills because of preschool, this will allow kindergarten and later teachers to teach at a higher level, which will increase student learning.  In addition, this will mean fewer kids in remedial education programs, which means more time and other resources for the remaining kids in remedial programs. If pre-K leads to better social skills, then there will be fewer disruptions in the K-12 system due to behavioral problems, and fewer classroom disruptions mean that all students learn more.  Students may learn from other students in their class, so if pre-K increases student achievement levels, this increases the potential for more learning from peers.

The empirical evidence does suggest that there are positive peer effects of having students in your classroom with higher educational achievement. Therefore, the empirical evidence suggests that the positive spillovers from more educated peers exceed any potential negative spillovers from the greater competition.  

Finally, one of the key arguments of my TED talk is that there are positive spillovers in adulthood of individual skills, due to their effects on the competitiveness, profitability, and wages paid by employers.  Even if I already have a college degree, the empirical evidence suggests that when more workers in my metro area have a college degree, the positive spillovers of their skills tend to increase my wages more than any negative effects on wages of having more labor market competitors. These positive spillovers include that with many workers with more skills, my employer and my employer’s suppliers will be more productive and better able to develop and introduce new technologies, which will increase the competitiveness of local businesses and thereby increase everyone’s wages.      

In sum, there is strong research evidence for broad long-term benefits of pre-K for children from many income groups.  The main point of my TED talk is that these effects on the skills of individuals will also translate into large local economic development benefits from state government investments in quality pre-K programs.

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What would it cost to transform “The Hell of American Day Care”?

Posted on May 7, 2013 by

Jonathan Cohn, a senior editor for The New Republic, wrote an outstanding article there a few weeks ago, entitled “The Hell of American Day Care: An investigation into the barely regulated, unsafe business of looking after our children”. The entire article is essential reading, even though some of it is troublesome reading. Cohn frames the article around the deaths of some children due to a fire in a Texas day care center, which was caused by the neglect of the day care center’s director.  But he then goes on to raise broader policy issues about what we as a society are failing to do to provide better child development for our nation’s children.

I want to focus in this blog post on one issue Cohn raises in a follow-up interview with Dylan Mathews of the Washington Post: what would it cost to make quality child care/preschool available to all families who need this assistance from birth to age 5? Cohn says in that interview that “I talked to some experts about what a true universal child-care program would cost. Nobody felt comfortable giving me a solid estimate.” I want to provide at least one estimate, and comment on its implications.

To summarize my conclusions: Providing access to quality child care for all birth to age 5 would probably cost around $100 billion annually in additional government funding. This amount of money is affordable and still somewhat less in child care and preschool funding than other leading countries, but would be politically difficult. This increases the importance of doing research on how we might hold down the costs by changes in child care and preschool design that could provide quality services at lower costs.  It also increases the importance of policies that would raise the economic position of lower-income families and thereby reduce the need for subsidies. Finally, I think the political cost of comprehensive birth to 5 services for kids increases interest in an incremental approach that would focus on age 4 preschool, which probably has the greatest ratio of benefits to costs.

The U.S. has around 19.7 million children under the age of 5. Of those children, around 25% are in families below the poverty line, 22% are in families with incomes between 100% and 200% of the poverty line, and 16% are in families with incomes between 200% and 300% of the poverty line.  Let’s assume that this 63% of families with incomes below 300% of the poverty line are the families for whom we are most concerned to make sure that quality child care and preschool is available and affordable.

The Abecedarian program was a high-quality full-time child care and preschool program from birth until age 5. The program has good random assignment research that suggests that the program increases long-run earnings of former child participants by an average of 10%. The program also provides considerable earnings benefits for parents, both in the short-run and the long-run, by allowing parents to accumulate more work experience and education. The Abecedarian program cost around $16,000 per child per year. The Educare  program that is supported by the Ounce of Prevention Fund and the Buffett Early Childhood Fund is very similar in design to the Abecedarian program.

Suppose we wanted to set up an Abecedarian program that would be available to all families on a sliding fee scale.  To pick somewhat arbitrary fees, assume that the government subsidy would be 90% of costs for families below the poverty line, 80% of costs for families between 100% and 200% of the poverty line, and 60% of costs for families between 200% and 300% of the poverty line.  Beyond 300% of the poverty line, families would have to pay full costs. Assume further that about 75% of all families receiving subsidies would participate in the program.

Under these assumptions, the government subsidy costs for this program would be about $118 billion per year. Of this total, $52 billion would go to families below the poverty line. There would be some cost savings offsets. With this new program, we would no longer need to spend money on Head Start, the Child Care Development Block Grant, or almost all the funds for state pre-K programs. This would save around $20 billion in annual costs. So the net costs of this program would be around $98 billion per year.

$98 billion is of course a lot of money. It is over $300 per capita averaged over the entire U.S. population, so funding it would require somehow collecting revenues of $1200 per year for the “average” family of four. I think that’s a very hard sell.

On the other hand, $98 billion represents between 2 and 3 percent of total federal, state, and local government receipts per year. $98 billion is around 8% of total state and local taxes. This amount of spending is equal to about 17% of total K-12 spending.  Therefore, what we’re talking about is a major expansion of about one-sixth in our spending on child education, which would require about an 8% tax increase if financed at the state and local level, but less than a 3% expansion of government revenues if we also got the federal government involved.  So if the financing is broader than just individual income taxes for the median household, then the proposal seems more affordable.

Based on OECD figures, such a proposal, if enacted, would increase U.S. spending on child care and education programs for preschool-age children from 0.4% of our Gross Domestic Product to about 1% of U.S. Gross Domestic Product, or an increase in our commitment of about two-and-a-half times. This would still leave the U.S. somewhat behind other leading countries in the percent of the national economy devoted to preschool-age programs.  For example, France, Finland, the United Kingdom, Denmark, Sweden, and Norway all spend 1.1% or more of their Gross Domestic Product on preschool and child care programs for preschool-age children. Therefore, it is not unusual for a leading industrial country to provide government subsidies of 1% or more of GDP in programs for preschool-age children.

Given the political difficulties in the U.S. of finding an extra $100 billion for child care and preschool, it seems wise to consider some alternatives that might make progress more politically attainable.  One alternative is doing research to see whether we can still increase quality preschool access, but at somewhat lower costs. We could use some good experiments that looked at different class-size ratios and different teacher training and teacher credential requirements at different ages. For example, the Educare model has 3 adults for every 8 infants and toddlers, and 3 adults for every 17 preschoolers – what are the cost/quality tradeoffs from tweaking those ratios? Right now, we don’t have enough evidence on this topic.

It would also be helpful if policies could lower the percentage of families that need large subsidies for child care and preschool. It is certainly disturbing that one-quarter of all American preschoolers are below the poverty line, almost half are below 200% of the poverty line, and over 60% are below 300% of the poverty line.  Job creation programs and training programs that would raise employment rates, and minimum wage and expanded wage subsidies that would raise earnings, would help. Government encouragement of paid family leave would reduce the needs for infant care, which is very expensive.

The enormous cost of providing full access to Abecedarian/Educare subsidies for needy preschool children is one reason for the interest in age-4 preschool as a political strategy. Universal half-day pre-K for 4-year olds might cost about $14 billion in additional funding per year.  This is about one-seventh the cost of full implementation of an Abecedarian style model. An extra $14 billion in funding is obviously more politically feasible than getting an extra $98 billion in funding, and in addition, universal pre-K would provide direct services to all children.

I think gross benefits and net benefits would be higher from full implementation of Abecedarian/Educare compared to universal pre-K for four-year olds. Depending upon what assumptions are made,  the gross increase in earnings from full implementation  of Abecedarian/Educare are probably from two to four times the increase in earnings from universal pre-K for four-year olds. But the benefits are not seven times as great. So, the benefit-cost ratio is somewhat higher for the four-year old pre-K approach.

A hybrid political approach is to begin with expanding 4-year old preschool, but at the same time seek to increase quality standards and access for child care and preschool for younger children. This should be coupled with research that would enable us to say more about quality and cost tradeoffs, and policies that would boost living standards for lower-income families with young children.  A package of policies may be needed to move us away from “hell”, and towards better child development for all American children.

Posted in Early childhood program design issues, Early childhood programs

My preschool and economic development presentation is TED’s “talk of the day”

Posted on May 6, 2013 by

On May 6, 2013, TED posted a fifteen minute presentation by me on pre-K and economic development as its “Talk of the Day”. TED slightly re-edited this from a TEDx talk I gave at Miami University last year.

In just a few hours, this TED posting led to over 10,000 views. The comments at TED after the video are interesting. I’ve posted a few responses there, and may comment further at this blog later on.

Posted in Early childhood programs, Economic development

Expanded pre-K is fiscally sustainable

Posted on April 11, 2013 by

The popular Washington Post blog “Wonkblog” had a post on April 11 2013 from Brad Plumer that got my attention with this headline:  “Funding preschool with a cigarette tax is unsustainable”.

The gist of the article is as follows: Although the proposed cigarette tax increase of $1.95 per pack would fully pay for the Obama Administration’s proposal for expanded preschool programs and expanded home visiting programs over a ten-year budget horizon, the annual funding per year at the end of the 10 year period is insufficient to pay for the program on an ongoing basis. Over the 10 year time horizon, total revenue is $78 billion and spending is $77 billion. But in the last year of the time horizon, 2023, total revenue is $6.1 billion and spending is $11.6 billion. 

The reason for this is two-fold: First, the preschool program is gradually expanded over time, which is eventually offset, but only partly, through a reduced federal share of the funding. Second, real revenue from the cigarette tax declines over time because the tax will reduce smoking more and more over time.

However, these figures do not take into account plausible positive fiscal feedbacks from pre-K. It is conventional practice of the Office of Management and Budget (OMB) and the Congressional Budget Office (CBO) to not consider most of the feedback effects of revenue and spending proposals from their effects on the economy and other fiscal categories. Thus, we would consider how a cigarette tax would affect smoking and hence cigarette tax revenues, but not how this would affect health care spending. For pre-K funding, we would consider likely take-up rates by states of the program, but would not consider any effects of the program in reducing special education spending, reducing prison costs, or increasing tax revenues from effects on parental earnings or the earnings as adults of former child participants.

The rationale for not doing “dynamic scoring” is that this might lead to temptations for budget gamesmanship, where politicians encourage budget agencies to make unrealistic assumptions about dynamic responses to reduce or eliminate the costs of political proposals. For example, if one makes extreme enough assumptions about how labor supply and capital investment respond to taxes, one can reduce or even eliminate negative effects of tax rate reductions on government revenues. 

However, although perhaps we don’t want OMB or CBO to be tempted by dynamic scoring, this is no reason for journalists or policy wonks to ignore plausible, research-proven economic effects of budget proposals in evaluating the proposals. In the case of pre-K, for example, we have very good evidence, for example from the Chicago Child-Parent Center program, that high-quality preschool reduces special education assignment rates by over 40%.  Pre-K also reduces crime rates by over 25%, which will reduce prison costs and other criminal justice system costs. Finally, pre-K will increase the adult earnings of former participants by over 7%, which will increase government tax revenues.

In their analysis of the benefits and costs of the Chicago Child Parent Center program, Art Reynolds and his colleagues find that the present value of the fiscal benefits of the CPC program outweigh the costs. The calculated present value of fiscal benefits is almost three times the costs, at 288%. (This includes their estimates of tax revenue increases, savings on special ed, savings on grade retention, reduced criminal justice system expenditures, savings in the child welfare system, and increased college tuition subsidies, but excludes estimates for possible savings on treatment of depression and substance abuse.)  The three biggest categories of savings are:  criminal justice system cost savings (present value of 106% of program costs); increased tax contributions as adults of former child participants (75% of program costs); reduced special education costs (63% of program costs).

Many of these fiscal offsets occur outside the 10-year time window that is often considered in OMB or CBO budget analyses. But the 10-year window is arbitrary. The figures given above are adjusted to present value terms, so the figures do attempt to discount these future fiscal benefits to reflect both inflation and the likely reduced value of future dollar benefits when viewed from the perspective of today.

Furthermore, some of these fiscal offsets will start occurring almost immediately. For example, this is true of special education cost savings.  In projections done for chapter 7 of my book Investing in Kids, I made relatively conservative assumptions about special education cost savings. As of 10 years after a universal preschool program is initiated, my estimates suggest that special education cost savings offset about 34% of the program’s annual costs.  This increases beyond the 10-year window to special education cost savings offsetting 48% of a universal pre-K program’s gross costs in the long-run.  The percentage cost savings would probably be greater for a more income- targeted pre-K program, which is largely what the Obama Administration’s pre-K proposal will be funding.

Other fiscal impact projections show even greater immediate fiscal benefits of pre-K programs. For example, Robert Lynch’s 2007 book, “Enriching Children, Enriching the Nation”, simulates that the fiscal “break-even” of an income-targeted pre-K program will occur after about 9 years.  This is probably the most relevant simulation to the Obama Administration proposal, which mostly funds pre-K for lower-income children.  But even for a more universal program, Lynch’s simulation suggest that as of 10 years after the program is begun, fiscal benefits offset over half of program costs. 

A realistic analysis of large-scale pre-K programs, based on good research evidence, suggests that expanding pre-K is one of the most fiscally sustainable policy options for the U.S. Even without a cigarette tax to finance pre-K, large-scale pre-K programs would pay for themselves in the long-run, and would pay a sizable share of costs even by the end of a ten-year time horizon.  Expanding pre-K actually would reduce the long-run ratio of government debt to U.S. economic output.  Deficit hawks should be strong supporters of expanding pre-K as a way to reduce long-run government budget deficits, even if we ignore the many benefits of pre-K for private individuals and private businesses.

Posted in Early childhood program design issues, Early childhood programs, Timing of benefits | 8 Comments