More on the finding that college pays off less if you grew up poor

My colleague Brad Hershbein and I have a new blog post at the Upjohn Institute website on our recent surprising discovery: the percentage return to getting a college degree, in terms of higher earnings, versus getting only a high school degree, is much lower for individuals who grew up in a low-income household, than for individuals who grew up in a non-low income household.

Why is this finding surprising? It is not surprising that one’s family income background affects a person’s earnings. But what is surprising is that this effect is much greater for someone who goes on to complete college versus someone who only gets a high school degree.

Adding to the surprise is that this pattern in the returns to college is not evident for blacks versus whites. One might expect that since blacks, on average, grow up poorer than whites, the percentage return to college versus high school should be smaller for blacks. In a forthcoming working paper by Brad and me, along with our colleague Marta Lachowska, we find that the percentage return to college for nonwhites is no less than that for whites. (This paper is entitled “The Merits of Universal  Scholarships: Benefit-Cost Evidence from the Kalamazoo Promise”. It should be available within the next few weeks.)

This new blog post further explores this new finding of lower returns to college for individuals who grew up poor. One discovery in examining this data is that this pattern mostly occurs because of how parental income background is associated with the earnings of college graduates. For individuals who only get a high school degree, “having the right parents” does not have huge effects on the career earnings path. But having the right parents matters a lot more to career earnings for those who go on to get a college degree.

In addition, when we look at career earnings in more detail with age, the extra return to college for those with higher-income parents, versus those with lower-income parents, seems to increase as a person ages and gets on in their career.

One hypothesis that some have suggested to explain these findings is that this pattern might occur if individuals from higher-income backgrounds tend to go on to even higher education, getting MDs or MBAs or other advanced degrees at a higher rate than those from lower-income backgrounds. But this cannot explain our results, because we still see similar differential returns to college if we restrict our sample to individuals who only get a college degree, and no higher degree.

We also briefly explore how these findings vary by race. What we find here is also surprising: this pattern of differential returns to college by family income background is more pronounced for whites than for blacks.

One final surprising aspect of this new discovery is why on earth this hasn’t been discovered before? As a researcher, I am very surprised when an analysis of well-known data sets such as the Panel Survey of Income Dynamics yields dramatic new findings. My best hypothesis is that these patterns become more evident if one observes later career earnings, so perhaps these patterns were not as evident when the PSID had fewer years of coverage.  In addition, perhaps no one was looking for this pattern precisely because it is not evident in the many databases that are available to compare the return to college for blacks versus whites.

Brad and I are actively engaged in further exploring these research findings. People have suggested these patterns might be due to: neighborhood/local area/region of family background; other family background characteristics; high school test scores or high school quality; quality of college attended; choices of majors and occupations; choice of neighborhood or area to live in after college.  We plan to explore these hypotheses and more over the next several months. Stay tuned!

Posted in Educational returns, Timing of benefits

We have enough evidence to expand quality pre-K

Professor Dale Farran of Vanderbilt University has a new policy brief at the Brookings Institution website, entitled “We need more evidence in order to create effective pre-K programs”. This policy brief makes the skeptical researchers’ case for collecting more research evidence on how to create effective pre-K programs. As a social science researcher, I hardly can quarrel with the need for improved research knowledge. However, I believe the policy conclusion that many will draw from this policy brief – that we should wait for more research before undertaking significant expansion of pre-K programs – is mistaken.

Professor Farran’s case is that we do not know as much as we would like about what really constitutes quality in pre-K programs, how to measure that quality, and how to improve quality. For example, we are not sure which skills increases in the Perry Preschool program were the most responsible for its large long-term benefits. We think that soft skills are in part responsible for the long-term benefits of Perry Preschool, and the long-term benefits found in other pre-K programs. But we’re not sure how best to measure soft skills. And the existing measures of classroom quality, including classroom observation measures, do not always seem consistently related to the skill gains in pre-K we can measure. Professor Farran then adds that the strong benefits for the Perry Preschool Program do not appear to be matched in some Head Start research studies, or in the Tennessee Pre-K study that she has helped direct.

From this, many readers might reasonably infer that we should wait until we have more research findings before undertaking any large-scale pre-K expansion. I don’t know if that is actually Professor Farran’s policy stance. She does say the following:

“The approach the field should take… is to begin a rigorous research effort to determine which malleable competencies in early childhood are most related to the developmental trajectories of poor children, which experiences within pre-K settings actually facilitate the development of those skills, and how the success of pre-K programs in transmitting those skills can be validly measured for purposes of accountability and improvement.”

This statement will not be interpreted by most readers as an endorsement of pre-K expansion.

Despite Professor Farran’s arguments, why do I think the case is still strong for pre-K expansion? First, long-term benefits of high-quality pre-K are attested to by a number of good studies. These good studies include not only the Perry Preschool and Abecedarian studies mentioned by Professor Farran, but also good studies of the Chicago Child-Parent Center program and the Head Start program. For example, the numerous studies by Arthur Reynolds and his colleagues of the Chicago Child-Parent Center program suggest that its pre-K program increases long-run earnings by 8%. Deming’s study of Head Start, which compares siblings who differed in whether they participated in Head Start, suggests long-term earnings effects of 11%.

Second, we have good evidence that high-quality pre-K can increase short-term test scores, and that early educational experiences that increase short-run test scores will predict better adult outcomes.  These studies of pre-K’s test scores effects include studies that show benefits of large-scale pre-K programs run by urban public school districts, for example there are good studies of both Tulsa and Boston.  Furthermore, there are good studies that suggest that early educational experiences that increase test scores in the short-term would be expected to increase adult earnings. (In contrast to what Professor Farran says, these studies have provided evidence that these effects of test score gains are due to causal effects of the early education interventions, and are not due to unobserved child characteristics.) In fact, these studies suggest that early test score gains of pre-K are a better predictor of long-term adult benefits than the medium-run test score effects in elementary and middle school.  The fading of pre-K test score effects by third grade found in Tennessee and in the Head Start experiment occurs almost universally, and in particular occurs in programs such as Perry Preschool that show very large adult benefits.  (See my review of this evidence in pp. 31-34 of my 2014 book, From Preschool to Prosperity.)

Why this short-term fading followed by long-term recovery of pre-K’s effects? The most plausible hypothesis has been most prominently identified by Nobel-prize-winning economist James Heckman, who argues that many of pre-K’s long-term benefits are mediated by improvements in so-called “soft skills”, which include social skills, planning skills, and self-confidence skills.

Now, as Professor Farran argues, we don’t have great measures of soft skills, or rigorous evidence on how best to improve soft skills. But this brings me to my third point: we don’t need to have rigorous evidence on how soft skills affect adult outcomes, or on how pre-K affects soft skills, to justify expanding pre-K.  We know that programs like Perry, the Chicago Child Parent Center program, Tulsa pre-K, and Boston pre-K can make a difference. We know that these programs employ certified teachers with a background in early childhood education, and that these teachers are paid sufficiently well to attract and retain teachers. We may not know all the intervening causal mechanisms that go between these program characteristics and strong outcomes.  But we don’t need to know all these intervening mechanisms for the intervention to make sense.

As I argued in a previous blog post, the best way to accommodate Professor Farran’s concerns that we don’t know enough about what quality pre-K is and how to create it is to do the following:

  1. Expand pre-K;
  2.  Fund it sufficiently well to over-invest in quality, for example by making sure the teacher salaries, qualifications and training are more than adequate;
  3.  As part of this expansion, experiment with different approaches to implementing quality pre-K, to allow for us to learn more.

The problem with delaying pre-K expansion until social science research has reached some stage of perfection is that this has a potential big cost: the loss of human potential by NOT providing quality pre-K to a cohort of young children. Policymakers should side with the preponderance of evidence that supports the high benefit/cost ratio for high-quality pre-K. (For example, see the research review by a group of early childhood researchers, and the research review by the Washington State Institute for Public Policy.)  In my view, this evidence makes the risks of not expanding quality pre-K greater than the possible risks of expanding pre-K that turns out not to be high-quality. And the latter risk can be minimized by over-investing in quality when we expand pre-K, and by testing out the relative effectiveness of different pre-K models.

The truth is that we will never get every social scientist to be fully satisfied with the research evidence on any public policy item. I sometimes wonder how Horace Mann in the 19th century would have fared if there had been social science researchers demanding  many rigorous studies showing that free “Common Schools” through 8th grade would benefit the public. Maybe we wouldn’t have free public schools today.

Having said that, in the case of pre-K, we probably have as rigorous research evidence for effectiveness as we are likely to have for most realistic public policy interventions to influence someone’s life course. We know that pre-K can work. While I agree with Professor Farran that we need to know more about the best ways to improve pre-K quality, we can gain such knowledge while still expanding pre-K programs so that we can benefit’s today’s children.

 

Posted in Early childhood program design issues, Early childhood programs, Uncategorized

Reflections coming out of the recent AEI forum debating pre-K

On Wednesday, February 17, I participated in a forum at the American Enterprise Institute. The forum, organized by AEI Research Fellow Katharine Stevens, was entitled “Does pre-K work? A look at the research.”

Forum participants, in addition to me, were Bill Gormley of Georgetown, Russ Whitehurst of the Brookings Institution, and Dale Farran of Vanderbilt University. Professor Gormley is well-known for his years of research on Tulsa’s pre-K program, which finds that this program has high benefits relative to costs. Dr. Whitehurst is a prominent critic of pre-K research, arguing that the evidence is fragile. (For a response to Whitehurst’s previous comments on pre-K research, see my previous post.)  Professor Farran is a lead researcher on the Tennessee pre-K experiment, which has attracted attention because the results suggest fade-out of test score effects.

Readers can view the video here.  Bill Gormley argued that there is much good evidence that pre-K can work. Russ Whitehurst argued that pre-K has been oversold as a magic bullet. Dale Farran argued that many of the state pre-K programs are not as high quality as model programs, and that we need to know more about what determine pre-K quality.

I wonder if all viewers of the video will understand that the general research consensus is that pre-K can work. For example, see this recent research consensus letter, signed by over 500 researchers.

My main argument at the forum was that we know enough to move forward with a significant expansion of pre-K, but we should provide the funding and services needed to make that pre-K high-quality. We should err on the side of overinvesting in quality, while answering the many remaining research questions by evaluating alternative program designs.

Policymakers’ decisions about pre-K expansion are subject to two types of errors.  The first error is to expand a low-quality pre-K program, whose few benefits are outweighed by costs. The second error is to NOT expand a high-quality pre-K program, which could have helped many children attain greater adult success.

Pre-K is not a magic bullet that solves all problems of income inequality, but there is good evidence that high-quality pre-K can increase adult earnings by 10% or more. This does not solve all social inequities, but it makes progress at a high benefit-cost ratio.  This argument is documented in my recent book, From Preschool to Prosperity, available for free download at the Upjohn Institute website, or for the big spenders, for $0.99 as a Kindle book.

The real research issue for pre-K is not whether pre-K can work – we know it can – but how to design a pre-K system so that we can learn more about what best makes for high-quality pre-K.

We need to expand pre-K towards universal access for all children at age 4. That system should over-invest in quality features such as paying enough to hire and retain quality teachers, and providing teacher coaching services.  The benefit-cost ratio for even small improvements in quality is huge. If we get a better teacher, this benefits many kids in each class affected by that teacher, and many classes over time.

Because the benefits of quality improvements are large, we need to evaluate experiments with many different designs of pre-K, which explore different ways of hiring and training teachers, and different approaches to delivering pre-K.

State and local governments have considerable incentives to expand pre-K on their own, because it will boost growth and help many families.  But because quality is hard to measure, state and local governments lack sufficient incentive to invest in high-quality. In addition, state and local governments lack sufficient incentive to invest in evaluation, as evaluation’s benefits are national. Therefore, we need local initiatives, but combined with quality and evaluation being supported at the national level, by some combination of the federal government and national foundations.

Posted in Early childhood program design issues, Early childhood programs, National vs. state vs. local, Uncategorized

What do we know about right-to-work laws and state prosperity? Not much, because of limited variation over time in which states are RTW states

Vigorous debate continues over the issue of “right-to-work” (RTW) laws, and how they affect a state’s economic growth and wage rates. Right-to-work laws make it illegal to require workers in unionized workplaces to pay dues to the unions that represent such workers in collective bargaining. RTW laws are believed to weaken labor unions.  As a result, it could be argued that RTW laws might attract some employers who want to avoid unions, but might also lower wages. The question is, what does economic research show about the strength of such relationships? Can states count on RTW laws as a reliable way to promote state prosperity?

The most recent state debating right to work laws is West Virginia. In West Virginia, recent research by Professor John Deskins and his colleagues, at the Bureau of Business and Economic Research at West Virginia University, has been cited as evidence in favor of RTW laws. For example, West Virginia House Speaker Tim Armstead stated that

“This study appears to support what we’ve been saying for some time – that a right-to-work law would certainly be advantageous to job growth in our state and is something we should take very seriously.”

I previously addressed the RTW issue in a 2013 column for Bridge magazine, and summarized research on the relationship between state RTW laws, state economic growth, and state wages.  I concluded in that column the following:

“Research suggests that the economic development effects of RTW are uncertain, with downside risks. Some studies find RTW boosts job growth, while other studies do not. Some studies find RTW reduces wages, while other studies do not. Precise predictions of RTW’s effects on per-capita earnings, which should be a primary goal for state policy, are not available.”

The question I want to address in this blog post is the following: is there anything in this recent research from West Virginia that would lead to any change in my prior summary of the research literature, that the effects of RTW laws are highly uncertain? The brief answer is No. The latest research does not provide any convincing evidence that a state that adopts RTW laws will as a result experience faster job growth.

The problem with the aspects of the West Virginia study that are cited by Speaker Armstead is that they do not overcome the fundamental problem with RTW research, which is the limited variation over time in which states are RTW states.  Research on the determinants of a state’s economic development has to face the fundamental problem that there are many characteristics of a state, both observed and unobserved, that potentially have major effects on a state’s economic fortunes. Unless a study controls for unobserved characteristics of a state that might affect its economic development, by looking at trends both before and after adoption of a RTW law, it cannot be considered to provide “certain” evidence of RTW effects.

The recent West Virginia results that are claimed to “certainly” show RTW effects on job growth do not look at how a state’s adoption of RTW affects job growth. Rather, the study simply looks at whether a state in a given year is a RTW state, and what its job growth is over the next 3 years. The study includes some controls for some other factors affecting state growth. But economic development research suggests that there are likely to be many other unobserved state characteristics affecting state growth.

Stronger evidence would be provided if the West Virginia study controlled for fixed effects of states on economic growth. The study then would essentially be estimating effects on job growth by looking at whether job growth increased in states that switched from non-RTW to RTW status over the sample period. Instead, the current West Virginia study is largely examining whether states that are persistently RTW states tend to have higher job growth than states that are persistently non-RTW states. But such a comparison does not provide strong evidence, because there can be many reasons why a state’s growth could vary.

For example, most RTW states have been persistently RTW states since before 1950, and are mostly located in the South. Southern states have tended to have faster growth and lower wage rates since 1950. But we wouldn’t want to regard this as strong evidence that RTW laws have caused this growth and lower wage rates. For example, much of the growth of the South has to do with the development of air conditioning, which has made Southern climates more attractive to workers and businesses.  RTW laws did not cause the South’s climate or the development of air conditioning.

I suspect that if the West Virginia study had controlled for state fixed effects, most of the estimated effects of state RTW laws would become statistically insignificant. Why would this be the case? The statistical insignificance of estimated effects of RTW laws in studies that do control for state fixed effects is largely due to the fact that until the last few years, only a few states have switched RTW status .For example, the only states that switched RTW status from 1980 to 2011 were Idaho in 1985 and Oklahoma in 2001.  A sample size of only two states switching RTW status does not provide very much information to determine RTW effects with much certainty.

Recent state policy changes may help allow us to have better estimates of RTW effects, but only after some time. Michigan and Indiana adopted RTW in 2012, and Wisconsin in 2015. After we have observed a full business cycle since these RTW adoptions, we may be able to obtain more precise estimates of RTW effects.

The most rigorous recent study that looks at RTW effects is a study by Eren and Ozbeklik, published in the Journal of Policy Analysis and Management in 2015. This study focuses on Oklahoma. It essentially constructs a counterfactual for what would have happened to Oklahoma if it had NOT adopted RTW in 2001 by matching Oklahoma with a weighted average of non-RTW states that closely match Oklahoma in pre-2001 trends. This study does find that RTW in Oklahoma reduced unionization rates, but finds no significant effects of Oklahoma’s adoption of RTW on job growth or wages.

Actually, the West Virginia study includes information that undermines the claim that adoption of RTW laws “certainly” increases job growth. The study includes some information on trends before and after RTW adoption in 10 states that adopted RTW laws after 1950. In 5 of these states, job growth increased after adoption of RTW, and in 5 states job growth decreased after adoption of RTW. This very mixed and uncertain result is representative of the overall findings of RTW research.  Based on current evidence, it is highly uncertain whether RTW laws have any positive effects on job growth. And some studies find that RTW laws are associated with lower wages, although this result too is highly uncertain.

If the effects of RTW laws are uncertain, are there policies with more evidence of positive economic effects? Probably the state policies with the greatest evidence for long-run effects on state economic growth are policies to increase the skills of a state’s workers. These include policies to increase participation by the children of a state in high-quality preschool, as well as policies to make postsecondary education more accessible. I have outlined the evidence for these economic development policies in numerous posts at this blog.

Posted in Economic development, Uncategorized | 1 Comment

Human Capital Programs Can Promote Local Economic Development; As Illustration, Consider “Promise-style” Place-Based College Scholarship Programs

A recent paper by me and a research analyst at the Upjohn Institute, Nathan Sotherland, analyzes the effects of “place-based” college scholarship programs on local economic development. Over 50 of these programs have been created since the 2005 creation of the Kalamazoo Promise. These programs, often called “Promise programs”, are distinguished by providing college scholarships that are targeted to K-12 students in a particular school district or city.

As shown by other research, such place-based scholarship programs can provide educational benefits. For example, in prior research by me and my colleagues Brad Hershbein and Marta Lachowska, we showed that the Kalamazoo Promise increased by one-third the students obtaining a bachelor’s degree.

However, human capital programs can also provide other types of benefits. In particular, they can promote the economic development of a local economy, by which I mean promoting local growth of employment and income and wealth.

Usual policies to promote local economic development emphasize labor demand approaches. These approaches seek to promote local economic development by directly providing tax breaks or other customized assistance to individual businesses, in order to encourage these businesses to locate in or expand in a local economy. Examples of such policies include property tax abatements and job creation tax credits and investment tax credits.

But local economic development can also be promoted by labor supply policies. Under labor supply policies, local employment growth and income growth is encouraged by expanding the quantity and quality of the local labor supply. Expanding local labor supply will encourage local employment growth because the availability of skilled labor is one of the key factors driving business location and expansion decisions. Studies have shown that shocks to local labor supply have about a one-for-one effect in increasing local employment.

In the just-released paper, we show that Promise-style place-based scholarships have effects for at least 3 years in reducing out-migration from a local area’s economy. These reduced out-migration effects are stronger for households with children. And these reduced out-migration effects are strongest for the area that immediately surrounds the area with Promise-program eligibility, although the out-migration effects are still large and statistically significant for the entire local labor market.

These reduced out-migration effects make sense because generous Promise scholarships provide a good reason for households to think twice before leaving a Promise area. A household might well make different decisions about moving away for personal reasons, because generous Promise scholarships are a substantial benefit.

The out-migration effects we estimate are large. We estimate that after three years, Promise programs have reduced out-migration sufficiently to increase the overall population of the local labor market area by about 1.7%. This effect occurs even though in our data, less than one-third of the average local labor market area in our data actually is eligible for Promise scholarships. Effects would presumably be larger for Promise programs whose eligibility encompassed a wider geographic area.

Based on these estimated Promise effects on out-migration and population, the immediate economic development benefits of Promise-style programs would be large compared to costs. For example, the annual costs of the Kalamazoo Promise are around $11 million. A 1.7% boost to an area’s population would be estimated to increase local property values by about 1%, based on past research (see Bartik, 1991). In Kalamazoo County, that would be an increase in property values of around $168 million. The present value of the annual costs of the Kalamazoo Promise of $11 million is about $367 million at a 3% discount rate, so the property value gain alone would be about 45% of the program’s costs.

In addition, based on prior research, we would expect that within a few years, a 1.7% boost to area population should boost local employment by a similar percentage. In Kalamazoo County, that would be a boost to employment of 1,900 jobs. The annual cost per job-year created would be about $6,000 (=$11 million/1900). This compares favorably with many economic development programs that rely on business incentives. For example, in a recent chapter for a book, based on a conference presentation at a conference sponsored by the Philadelphia Federal Reserve Bank and the University of Pennsylvania, I estimated that some typical business incentives might have a cost of around $20,000 per job created.

Therefore, immediate local economic development benefits of Promise-style programs can be substantial. These immediate benefits do not include the long-term benefits that stem from the educational effects of these programs on students.

The growth of local economies can be promoted by both labor demand and labor supply policies, as argued in my 2011 book, Investing in Kids. Smart state and local economic development will include both labor demand and labor supply policies that have a high bang-for-the-buck. On the labor demand side, these include business incentives that assist businesses that pay well, hire locally, and have large multipliers, and include business incentives that are well-designed business customized services. On the labor supply side, cost-effective policies include Promise-style programs, as well as high-quality early childhood programs.

Posted in Business incentives, Early childhood programs, Economic development

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 http://heckmanequation.org/  , 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