Supply-side early childhood economics

Early childhood programs can be described as “supply side” programs because they improve local economic development by improving the quantity and quality of local labor supply.  Many non-economists are unaware that both conservative and liberal economists are in some sense “supply side” economists. Both liberal and conservative economists  are interested in how we can cost-effectively boost economic output and incomes by boosting the quantity and quality of various factors of production. Where economists of various political persuasions differ is over what policies can effectively boost the supply of different productive factors.

If the key local economic development benefit is higher per capita local incomes, then local economic development really is aimed at improving labor market outcomes. It is mainstream labor economics that labor market earnings can be improved by either increasing the quantity and quality of labor demand or labor supply. The key distinction between policies working on either side of the labor market is whether they directly seek to affect  employers, or potential workers. Regardless of which side of the labor market we work on, what happens on one side of the labor market affects the other side. Increases in the quality and quantity of labor demand will lead to potential workers making decisions to improve the quantity and quality of their labor supply. Increases in the quantity and quality of labor supply will lead to employers making decisions to hire more workers and/or more workers in more skilled jobs.

In discussing local economic development, many non-economists have in mind an implicit model in which labor demand does not respond to labor supply. For example, people will say that there is no point in increasing the number or skills level of workers in a state if there is high unemployment, as these new or better workers will just leave the state. But the empirical evidence suggests this intuitive model is incorrect. Even in a high unemployment local labor market, boosts to the quantity and quality of labor supply will lead to boosts in the quantity or quality of employment.

A wide variety of policies may boost the quantity or quality of local labor supply or demand, and thus boost local economic development.   Why, then, place any special emphasis on early childhood programs? The main reason is that among all these policies, early childhood programs have some of the best evidence of having a high “bang for the buck”. Effective economic development policy should focus on boosting local economic development using cost-effective policies, not at any cost.

About timbartik

Tim Bartik is a senior economist at the Upjohn Institute for Employment Research, a non-profit and non-partisan research organization in Kalamazoo, Michigan. His research specializes in state and local economic development policies and local labor markets.
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