Reducing inequality may sometimes increase economic growth – and a specific example is early childhood education

Nobel prize-winning economist Paul Krugman devoted his column this morning to recent empirical evidence, from the International Monetary Fund, which indicates that reducing income inequality need not reduce economic growth. This goes against a tradition among economists as seeing an inherent tradeoff where reduced income inequality can only be pursued at a cost in reduced economic output or growth.

A prime example of a public policy that both reduces inequality and promotes economic growth is increasing access to high-quality early childhood education, such as pre-K programs and high-quality child care.

As I’ve mentioned in previous posts, high-quality pre-K can increase the adult earnings of children from low-income families by 10% or more.  High-quality child care and pre-K from birth to age 5 can increase the adult earnings of children from low-income families by over 25%.

Yet these policies will also increase economic growth. The evidence suggests that these extra skills and earnings for children from low-income families will provide spillover economic benefits for the rest of society.

These spillover benefits occur because my earnings depend in part on the skills of my fellow workers, in my firm, and elsewhere in my local economy. Firms are better able to introduce new technologies when a higher percentage of all workers are skilled, so my firm may be more competitive when my fellow workers get more skills. Firms’ competitiveness also depends on the skills of local suppliers, so my wages may depend on the skills of those suppliers’ workers. Firms may also be more innovative if they are able to get ideas and skilled workers from other local firms.

How do these spillover benefits occur? They occur by firms investing more and creating more local jobs when a local economy increases its overall skills. Expanded pre-K and other early childhood education programs can expand the local skills base. A worker can benefit from such expansion of early childhood education even if his or her skills would have been fine even without the expansion – the increased skills of other workers will boost job creation and boost worker productivity for all local workers.

Early childhood education is a prime example of a case where all workers share in the economic fortunes of an economy, which depend in part on everyone’s skills. Investing in “other people’s children” not only is a moral issue, but also an issue of enlightened self-interest.

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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