Andrew Rotherham has an April 5th Time magazine column with the ominous title, “Are Pre-K Programs About To Get Gutted?” Mr. Rotherham apparently has access to an advance copy of the forthcoming annual report on state preschool programs from the National Institute for Early Education Research, which is to be released on Tuesday, April 10. Mr. Rotherham reports that “Roughly two-thirds of the 39 states with early-childhood education programs cut spending in 2011…[M]any states are planning on additional cutbacks in the next several years.”
What political arguments can reverse this adverse trend in state support for pre-K programs? I think we need to continue with the argument that investment in high-quality early childhood programs is an essential part of state economic development strategy. If a state wants to be positioned to have good growth in earnings per capita, it needs to improve its business climate for more and better jobs in two ways: by an attractive business tax and services climate; by developing a high-quality labor force. Early childhood programs are one of the most research-proven ways of developing a high-quality labor force. We are making slow progress with this economic development argument. In the long-run, I believe this argument can be politically decisive.
However, we also need some short-run arguments. People want to know what early childhood programs can do today. And there is concern among some groups about government debt and spending that must be addressed. I think we need to show how early childhood programs can address our current economic crisis, as well as our long-run debt problems.
The most recent Bureau of Labor Statistics report on national employment trends showed disappointing employment growth in March of 2012. Nonfarm payroll employment rose by only 120,000 jobs. This is only a little bit ahead of the 90,000 extra jobs per month needed to keep pace with our growing population.
We’ve done a little better over the last year, with non-farm payroll employment growing by about 1.9 million from March of 2011 to March of 2012, a little over 150,000 jobs per month. Still, under any reasonable projection, if we don’t see a large-scale acceleration of job growth, we can expect to see high unemployment and low employment to population ratios in the U.S. until at least 2020 and perhaps much later.
A part of this sluggish jobs growth is that government employment, and particularly state and local government employment, has been going in the wrong direction. Over the past year, there has been a gain of 2.1 million in private sector jobs. Government jobs have shrunk by 200,000 jobs. Of that shrinkage, over 100,000 has been in reduced local government jobs.
What can early childhood programs do to help these jobs trends in the short-run? Well, suppose we moved to universal pre-K education. What would that do for jobs in the short-run?
In my book Investing in Kids , I estimate that moving to a high-quality universal pre-K program, for 4-year olds only, and only for a half-day during the school year, would have net costs of $14.3 billion annually. Obviously we could also spend more, for a program that would include 3 year olds, or for a program that was full-day.
In the research that led up to my book, I estimated that spending $14.3 billion on universal pre-K would on net create 80,000 jobs, even if it was entirely tax financed (see my 2006 report, p. 37). Therefore, even if we increased taxes to pay for universal pre-K, such a program, by itself, would essentially make up for the reduction in local government jobs that has occurred over the last year.
If universal pre-K spending was deficit-financed in the short-run, its short-run job creation effects would be much higher. If we used some plausible multipliers for deficit-financed increases in government services, we would get job creation of at least 150,000 jobs from spending $14.3 billion on universal pre-K. If we allowed for early childhood programs having somewhat lower wages and being more labor intensive, universal pre-K might increase short-run job creation as much as 250,000 jobs.
(The first calculation of 150,000 jobs divides the $14.3 billion by an estimated $92,000 cost per job created for deficit-financed government purchases. The second calculation of 250,000 jobs multiplies the 80,000 in job creation from tax-financed universal pre-K by the ratio of public services job creation to net job creation from econometric studies of balanced budget tax and spending changes in state economies. Such studies suggest that increased taxes offset about two-thirds of the direct job creation effects of more government spending on services, so the job-creation effects when no taxes are raised will be about three times the effects of a balanced budget increase in spending on pre-K.)
Therefore, if the federal government or state governments were willing to run budget deficits to finance universal pre-K, we could over the next year or so create up to 250,000 jobs in the U.S. economy. This would help to significantly speed up our economic recovery.
But what about the debt burden from deficit-financed universal pre-K? In the short-run, the increased debt is not a huge burden given low real interest rates and the sluggish state of our economy. In the long-run, high-quality universal pre-K would provide fiscal benefits that would imply that such a program would be essentially self-financing in the long-run.
For example, we know from the research of Art Reynolds and his colleagues that pre-K programs targeted on the disadvantaged would clearly have a present value of fiscal benefits that significantly exceeds costs. In the most recent benefit-cost analysis of the Chicago Child-Parent Center program, Reynolds and his colleagues finds that for each dollar invested in these programs, the present value of future fiscal benefits is conservatively estimated at $2.80. This $2.80 fiscal benefit per dollar of program costs can be broken down as follows: 62 cents in lower special education costs, 75 cents in higher tax receipts, $1.06 in lower fiscal costs for the criminal justice system, and 36 cents in lower child welfare system costs.
Of course, a universal pre-K program probably wouldn’t get quite so high a benefit per dollar of investment. However, as shown in my work with William Gormley and Shirley Adelstein on Tulsa’s pre-K program, the evidence suggests that the future earnings benefits of universal pre-K are of similar magnitude for middle-class households vs. lower-income households. These middle-class households might pay somewhat higher tax rates. Therefore, I think it conservative to say that a universal program might increase the present value of future tax receipts, due to higher earnings, by 90% of the 75 cents per dollar estimated by Reynolds et al., or 67 cents.
As for the other $2.05 in fiscal benefits per dollar estimated by Reynolds et al., it seems a quite conservative assumption that a universal program would provide at least 20% as high benefits per dollar invested, or 41 cents. Given the 21% of all American children are below the poverty line, this assumption seems warranted even if one assumes that pre-K for middle-class children has no benefits in lowering special education costs, lowering crime rates, or lowering child welfare system costs. A universal program would get such benefits from the low-income children it serves.
As a result, a conservative estimate is that a universal pre-K program would provide future fiscal benefits whose present value is at least $1.08 (=67 cents in higher future taxes plus 41 cents in other future fiscal benefits). As a result, spending an additional $14.3 billion on a universal pre-K program would provide future fiscal benefits with a present value of $15.4 billion. Our long-run “debt burden” would actually go down by $1.1 billion.
Furthermore, in the current economic situation, this doesn’t even count the long-run economic benefits of job-creation. Creating jobs lowers long-term unemployment. Long-term unemployment erodes workers’ job skills, self-confidence, and reputation with employers. All these effects end up lowering some workers’ long-run employability and wages. As argued recently by Delong and Summers, in a severe recession, it is possible that the boost to long-run economic activity from lowering long-term unemployment may be sufficient that deficit-financed increases in government spending can be self-financing.
In sum, why should state governments, rather than cutting pre-K, actually consider expanding pre-K to universal scale, despite the still troubled fiscal situation? Why should the federal government consider deficit-financed support for moving to universal pre-K? The argument is that in the short-run, universal pre-K can create hundreds of thousands of jobs, which will give a needed boost to the economic recovery. And in the long-run, such an initiative is likely to be self-financing, due both to the economic and social benefits of pre-K, and the economic benefits of lowering long-term unemployment.