Parental earnings benefits of early childhood programs shouldn’t be forgotten

One point made in my recently-published book From Preschool to Prosperity (available free as a pdf, and for $0.99 in various ebook formats, and also in paperback) is that parental earnings benefits are an important economic benefit for many early childhood programs.

For programs such as the Abecedarian program and Educare, which provide high-quality child care and pre-K from birth to age 5 for children from low-income families, the present value of earnings benefits for parents are actually about 50% greater than the earnings benefits for former child participants. The average present value of parental earnings benefits per family are over $190,000. These earnings benefits are in part short-term benefits from free child care enabling parents to work. But the free child care also enables parents to go back to school or obtain job training. The skills developed by the parent’s increased education or training, along with the skills developed by the parent’s increased work experience in the short-run, will help increase parental earnings in the long-term.

For the Nurse Family Partnership program and other home-visiting programs to improve parenting, in the real world an improvement in parenting is often linked to parents being empowered to improve their own lives. The available evidence suggests that this results in increased parent earnings, whose present value is similar to the positive effects of parenting programs on the future earnings of former child participants. The present value of increased maternal earnings per assisted first-time mother is over $15,000.

Parental earnings benefits are less important for programs providing only one year of preschool. This simply doesn’t provide enough free child care to significantly affect parental earnings. However, as my book details, one year of preschool is a very cost-effective way of increasing the future adult earnings of former child participants.

While early childhood programs should remain focused on the important goal of providing quality services that enhance the life prospects of the child, programs should not neglect a possible dual purpose of helping parents. From a standpoint of social benefits and costs, for many programs the benefits for parents can more than double the benefit-cost ratio.

Posted in Early childhood programs

Even under conservative estimates, early childhood education can do quite a bit to address income inequality

On September 16, the latest Census Bureau statistics on poverty and income distribution were released. Among other things, these latest stats showed a stagnant trend in relative income of different groups, based upon the Current Population Survey, which omits some incomes of very high-income groups. But this recent stagnant trend is in the context for a longer-term trend towards a much more unequal income distribution, with top incomes growing faster than income for the lowest income quintile or the middle-income quintile. (The lowest income quintile consists of households whose income puts them in the lowest fifth of all households; the middle-income quintile consists of households whose income puts them in the middle fifth of all households.)

As Conor Williams highlighted in his recent review, my new book, From Preschool to Prosperity, highlights that a full-scale commitment to a package of early childhood education proposals could make a major difference to the U.S. income distribution. Specifically, I estimate that a package of universal pre-K plus high-quality early child care for all low-income families could offset 5/6ths of the adverse income distribution trends of the last 30 years for the lowest income quintile, and 1/6ths of the adverse income distribution trends of the last 30 years for the middle-income quintile.

What I want to emphasize in this blog post is that my book’s estimates are quite conservative estimates. I am only counting estimates of the direct earnings effects of early childhood education on the earnings levels of former child participants. By raising skills, early childhood education can help both low-income children and middle-income children to increase their earnings as adults by large percentages, over 25 percent for the lowest income group, and about 5 percent for the middle-class.

But these estimates are deliberately quite conservative estimates that omit some possible additional effects. These estimates are conservative because it is hard to reliably quantify some of these additional effects based on the most rigorous possible research.

Some possible additional effects of early childhood education on the income distribution include:

  •  High-quality child care and parenting programs for low-income groups will boost parental earnings (I’ll have more to say about this effect tomorrow);
  • The increased worker skills for both former child participants, and parents, will have spillover effects on the earnings of others (I’ll have a blog post on this in the next few weeks, and my TED talk deals with this topic);
  • The increased earnings of former child participants will have second-generation effects on the earnings of their children;
  • My estimates assume that higher overall skills only affects productivity levels in the economy, but higher skills may also boost the overall rate of innovation and productivity growth in the economy.

It is hard to exactly quantify how all these effects will alter the American income distribution. But it seems likely that the boost to parental earnings will help the lowest income quintile the most, as will the second generation effects. In addition, the available evidence indicates that skill boosts tend to help lower-income workers in the economy the most. How changes in innovation will alter the economy is hard to say, but if all workers have more skills, one might think that technology and the economy might adapt to more fully utilize the skills of all workers.

In general, it is hard to completely model in any rigorous fashion all the social consequences of a full-scale commitment to early childhood education. What will happen in various neighborhoods if this investment leads to a drop in overall crime? How will political participation change if a higher percentage of all workers are more educated and better informed? One could go on.

What we can say is that even without some of these more profound effects of a full-scale investment in early childhood education, the direct effects we can quantify will have large benefits in helping make the income distribution more progressive. Early childhood education cannot by itself solve the income distribution problem. But a full-scale investment in high-quality versions of these early childhood programs can make a major difference in both growing our economy and more broadly distributing that growing economy’s wealth.

Posted in Distribution of benefits, Early childhood programs

Conor Williams’s review of “From Preschool to Prosperity” in The Washington Monthly

Review is here, cross-posted at New America’s Ed Central. Conor Williams is a Senior Researcher in the Early Education Inititiative at the New America Foundation.

“Bartik bridges the distance between accessibility and expertise. From Preschool to Prosperity is supremely organized and readable, but it’s also jammed full of useful information. It’s the book for anyone who’s been following New York City’s pre-K expansion…and wants to know why it’s such a big deal. It’s the book for anyone who’s heard the … stats on the return on investing in pre-K…and finds themselves wondering just how researchers come up with those numbers.”

More here.

Posted in Early childhood programs

What are economic benefits and why do we care?

My just-published book, From Preschool to Prosperity: The Economic Payoff to Early Childhood Education, focuses on preschool’s economic benefits. What are “economic benefits” and why should we care about them? Many people have an adverse reaction to focusing on the dollars and cents associated with human service programs, so there should be some rationale for what could seem a cold-blooded approach to helping children.

By “economic benefits”, I simply mean the increase in earnings. Preschool and other early childhood programs increase earnings in three ways:

  1.  Early childhood programs increase earnings as adults of former child participants, by helping set off a process that leads to these former child participants having higher skills as adults.
  2. Many early childhood programs also increase parents’ earnings. Child care programs free up time for parents to work or go to school, both of which increase parents’ long-run skills and earnings. Parenting programs not only empower parents to be better parents, but also help parents improve their own life course.
  3. These increases in skills of former child participants and parents have spillover benefits for the earnings of other workers. If my co-workers have better skills, this helps my earnings because it better enables my employer to introduce new technologies and be more competitive in the global market.

Why should we care about these earnings increases? One obvious reason is that increased earnings allow individuals to increase the quality of their life. But earnings increases are valuable not only because they allow increased consumption, but also because increased earnings from work provide individuals with a greater sense of self-respect, empowerment, and autonomy.

Beyond the value of earnings benefits for those receiving the earnings, such earnings increases also have benefits for the business community. Higher earnings from higher skills means that businesses benefit both through greater availability of skilled workers and greater consumer demand for their products. The core of the “business case” for preschool rests on these programs’ effects on earnings.

Earnings increases also have fiscal benefits for governments and taxpayers. “Fiscal benefits” are some combination of higher tax revenues and/or lower public spending needs without any change in tax policy or spending policy. Such fiscal benefits allow the government to lower tax rates or raise public services, which benefits taxpayers. Earnings increases produce fiscal benefits from the taxes on these earnings, and the reduced welfare expenditures that will accompany increased earnings.

Earnings benefits of public programs are valuable, and early childhood programs are a cost effective way of delivering such earnings benefits. From Preschool to Prosperity presents the research evidence for that assertion. The book tries to make that evidence accessible to a broad audience, and in a book that can be read in less than 2 hours.

From Preschool to Prosperity is available as a pdf (free from the Upjohn Institute), on Kindle ($0.99) and in paperback ($14.99 or whatever discounted price Amazon is experimenting with right now).

 

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My new book, From Preschool to Prosperity, is available on September 15, 2014

My second book on early childhood programs is available as of September 15, 2014. This book is entitled From Preschool to Prosperity: The Economic Payoff to Early Childhood Programs. This book is available free as a pdf file, at a nominal price ($0.99) on various e-book platforms, and at a price covering printing costs in hard copy form.

Why a second book on early childhood programs, when my first book, Investing in Kids: Early Childhood Programs and Local Economic Development, was published in 2011?

First, this new book is much shorter than my earlier book. The new book is short enough to be read entirely in less than two hours, which I hope will enlarge the audience for the book.

Second, this book has a more general focus than the previous book. The previous book was more narrowly focused on whether early childhood programs can boost local economies. While this is an important issue, the present book instead focuses more generally on all the economic payoffs to early childhood programs.

From Preschool to Prosperity reviews the key issues about the case for early childhood programs: the rigor of the research evidence, a discussion of the key arguments made by opponents of expanded early childhood programs, a discussion of what research suggests about how early childhood programs should best be designed and financed, and an analysis of what the research evidence suggests for the spillover benefits of early childhood programs for others besides the families participating in the programs.

These broad issues should be of interest to many audiences, including early childhood education advocates, the business community, and policymakers.

I’ll be blogging over the next few weeks about some of the issues discussed in From Preschool to Prosperity.

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Incentives and the public interest

A new paper by me and George Erickcek on incentives was published online today in the journal Economic Development Quarterly. The online version is behind a paywall for non-academic readers, but it is quite similar to a prior working paper version.

This new paper is on MEGA, a now defunct business incentive program in Michigan that provided discretionary subsidies to new plants or plant expansions based on job creation. Here is the abstract of the paper:

“This article simulates job and fiscal impacts of the Michigan Economic Growth Authority’s tax credit program for job creation, commonly called “MEGA.” Under plausible assumptions about how such credits affect business location decisions, the net costs per job created of the MEGA program are simulated to be of modest size. The job creation impacts of MEGA are simulated to be considerably larger than devoting similar dollar resources to general business tax cuts. The simulation methodology developed here is applicable to incentives in other states.”

I think it is important to clarify what this article does and does not imply about the benefits and costs of discretionary incentives for business.

First, the article simulates that MEGA’s tax incentives have modest costs per job created because MEGA was targeted at export-based businesses that paid unusually high wages (averaging over $75,000) and had unusually high multipliers (averaging almost 4; that is, for each job created directly in a MEGA subsidized business, there were almost 3 additional jobs created in other Michigan businesses). These high wages and high multipliers led to higher job creation and earnings creation impacts for MEGA than would be true of most other state and local business incentive programs. In addition, many other state and local incentive programs are not targeted at “export-base” businesses (businesses that sell their goods and services to non-state customers), but rather also go to businesses selling to state customers. Incentives that go to businesses that sell to in-state customers may increase jobs in the assisted businesses, but will displace jobs in other state-based businesses, resulting in little net job creation impact.

The bottom-line is that we would expect many other state and local business incentive programs to have much higher state costs per job created and much higher state costs per dollar of earnings for state residents generated than is true for MEGA.

Second, the article does not consider in much detail an issue I have explored in other recent work: how do the percentage of jobs created that go to state and local residents vary with an area’s initial local unemployment rate?. In a paper forthcoming in Growth and Change, I estimate that for a local area with initially low unemployment, an increase in 1000 local jobs will after 10 years only raise local residents’ employment rates by about 200 jobs, with the rest of the jobs going to in-migrants. In contrast, if the local area’s unemployment rate is initially high, after 10 years the increase in employment of local residents is around 500 jobs for a local job increase of 1000 jobs. Therefore, we should not assume that every new job going to a local area corresponds to benefits for local residents, and the extent of such benefits depends greatly on prevailing local unemployment conditions.

The bottom-line is that even if job creation is cheap, whether local job creation provides substantial local benefits depends greatly on whether the local area is currently really in need of jobs.

Third, the article’s finding that incentives often beat general business tax cuts is probably generalizable to many state incentive programs. Incentives can be cheaper per job created because they are often focused on export-base businesses making new job creation decisions, whereas general business tax cuts include many non-export-base businesses, and many businesses not considering job creation.

If a state can keep incentives tightly targeted, such incentives can usefully substitute for general business tax cuts that cause a far larger revenue loss for state and local governments than targeted tax incentives. The political problem is that tightly targeted incentives tend to grow over time.

Fourth, none of this analysis addresses the national consequences of business incentives. From a national perspective, most of any job growth in a state due to incentives is a zero-sum game. The incentives redistribute economic activity among the states, often in a random direction with no clear policy purpose, and result in an income distribution from the general taxpayer to owners of capital, who tend to be wealthier.

From a national perspective, even if incentives work for an individual state acting alone, restricting incentives may be in the interest of the nation. The U.S. should consider policies similar to the European Union, which seeks to restrict the magnitude and type of business incentives. Most state and local business incentives in the U.S. would be illegal as unfair export subsidies if they were attempted by France or Germany. In the European Union, incentives that exceed a certain size are automatically illegal unless they advance particular policy goals such as helping designated distressed regions, small business, high technology businesses, or job skills. Similar rules in the U.S. would considerably reduce the volume of incentives, and retarget U.S. incentives on particular policy goals. All states would gain some business tax revenue, and public services would be enhanced, while also helping promote smarter economic development.

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My new book will be available September 15

My new book, “From Preschool to Prosperity”, will be available September 15, at Amazon and at the Upjohn Institute website. More on this book starting on September 15, when I will begin a series of blog posts summarizing some of the book’s arguments, and evidence for these arguments. . 

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