I am exploring in a series of posts how a metro area’s characteristics might alter the economic development benefits of the area’s investments in early childhood programs or business incentives. This is important because we want to see whether these programs have economic development payoffs in all types of local areas, or only in certain types of local areas. These issues are explored in detail in chapter 9 of Investing in Kids.
Today’s post considers how prevailing metro growth trends might alter economic development benefits of early childhood programs. A later post will consider implications of metro area growth for business incentives.
What I mean by the prevailing metro area growth trend is what the area’s growth would have been without the proposed investment in early childhood programs. Do the economic development benefits of an area’s investment in early childhood programs vary with whether the area would otherwise be slow growth or fast growth?
We might expect an area’s investment in early childhood programs to be lower for slow-growth metro areas. We would expect slow-growth areas to lose more of their children to out-migration. This would lower the economic development returns to investing in those children, from the perspective of the local area.
However, my empirical estimates suggest that the effects of metro area growth are slight. The percentage of children who stay in a metro area as adults is only significantly lower for the metro areas who are in the slowest growing fifth of all metro areas. In the metro area data I am using, these are metro areas whose annual population growth averages less than 0.2%.
For these slowest growing metro areas, the economic development benefits of early childhood programs will be about one-tenth lower. With this modest difference, I find local economic development benefits still considerably exceed local costs for all three types of early childhood programs I analyze. (These three types are universal pre-k, high-quality full-time child care and preschool from birth to age 5, and the Nurse Family Partnership.)
What is going on here? Apparently, even if a metro area’s growth is slow, many children brought up there will still stick around as adults. The slower growth probably has larger effects on whether outsiders migrate in. Even if the area’s growth is slow, with reduced in-migration, residents who stick around still can have a reasonable chance of getting jobs as adults. As a result, early childhood programs can still pay off as economic development investments in slow-growth local areas.
This argument goes against some people’s intuition. You hear people make the argument that there’s no point in investing in higher education or preschool because the newly educated will just leave the state or local area if there are no jobs.
This argument ignores two empirical realities. First, it turns out that even if an area’s growth is slow, many people stay, and the proportion leaving only goes up slightly.
Second, more and higher quality labor supply attracts labor demand. The number and quality of local jobs is not fixed by some mysterious “business climate”. Rather, the number and quality of jobs responds to local labor supply. To put it another way: one of the most important components of an area’s “business climate” is the quality of its labor supply. Increased quality of local labor supply can be achieved by many policies. Among such policies, high-quality early childhood programs have the distinction of causing large effects on local labor quality per dollar invested.