Over the course of several different blog posts, I have been discussing what both logic and evidence suggest for how the effects of preschool vary across different income groups. Given this discussion, what are plausible estimates of the effects of a universal pre-k program on different income groups? Chapter 8 of my new book, Investing in Kids, provides original simulations that address this question.
As discussed in the book, the universal program being modeled is a half-day school year program for 4-year olds. The program is assumed to be high-quality in that the program has reasonable class sizes, adequate teacher salaries and teacher quality, and a well-designed curriculum that develops both hard and soft skills. The program is a voluntary program that is provided for free to all four year olds, so it has universal access but not necessarily universal enrollment: 70% of four year olds are assumed to actually be enrolled.
Based on the evidence discussed in previous blog posts, we would expect the dollar effects of preschool on adult earnings of former child participants to be lower for children from higher income families. However, these effects will not be zero.
Effects of expanded high-quality preschool on children from upper income families will be lower for two reasons. First, children from upper-income families would be more likely to already on their own be enrolled in high-quality preschool, even without the expanded program. Second, high-quality preschool is assumed to have smaller dollars effects for children from upper income families because they already (on average) have other advantages and fewer problems to overcome.
I examine how effects of preschool differ across “income quintiles”. The income quintiles are based on ranking all households by household income. Households are then divided into five equal sized groups by their ranking in household income. The bottom income quintile consists of households with less than around $20,000 in income. The second income quintile is households with $20,000 to $39,000 in income. The middle income quintile is households with $39,000 to $62,000 in income. The fourth income quintile is households with $62,000 to $100,000 in household income. The top income quintile consists of households with more than $100,000 in household income.
The simulations are in part based on some reasonable assumptions about how the earnings effects, measured in dollars, of preschool for children from the top four income quintiles compare to the earnings effects of preschool for children from the bottom income quintile. Earnings effects per child for the second lowest income quintile are assumed to be 19% less than earnings effects per child in the bottom income quintile. Earnings effects per child for the middle income quintile are assumed to be 69% less than earnings effects per child in the bottom income quintile. Earnings effects per child in both the top income quintile and the next highest income quintile are assumed to be 92% less than earnings effects per child in the bottom income quintile.
These assumptions are conservative assumptions for the benefits of preschool for children from middle income and above families. As detailed in a previous post, there is some evidence that benefits of preschool for children from middle income families might be only one-fifth lower than for children from the lowest income families. These simulations assume a more drastic tail-off of benefits, by over two-thirds for middle income families compared to the lowest income families.
Based on these assumptions, a universal pre-k program has highly progressive effects on a state’s distribution of income. The net benefits for the lowest income quintile are quite high. After allowing for taxes paid, the preschool program boosts the earnings of the lowest income quintile by over 6% of income. For every dollar that the lowest income quintile pays in increased tax costs for the universal pre-k program, the lowest income quintile receives over $25 in higher earnings: the benefit-cost ratio for the lowest income quintile is over 25 to 1.
But the second lowest income quintile and middle income quintile also gain from universal pre-k. For example, for the middle income quintile, with income between $39,000 and $62,000, the ratio of earnings benefits from universal pre-k, compared to the taxes this group pays for universal pre-k, is around 3 to 1.
Even though the benefits from preschool decline as household income increases, the middle class can still benefit from universal pre-k. The benefits of preschool for lower income groups are so large, that even if benefits decline dramatically for middle income children, the benefit cost ratio of preschool for the middle class can still be favorable. This crucial point is sometimes missed by critics of universal pre-k.
For the top two income quintiles, the tax costs exceed the earnings benefits from universal pre-k. But the net loss is modest. For example, for the top income quintile, with more than $100,000 in income, for every dollar of taxes paid for the universal pre-k program, this income quintile gets 32 cents in earnings benefits. But the net loss is only about 0.1% of income, which is one-thousandth of income.
Therefore, universal pre-k provides significant benefits for a majority of income groups. The bottom three quintiles, comprising the 60% of all households with income less than $62,000, all gain from universal pre-k. The political feasibility of universal pre-k depends on whether these benefits for the majority outweigh the modest net excess of taxes over benefits for the minority of households with higher incomes.
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