Improving evaluation of economic development programs

Posted on April 30, 2012 by timbartik

The Pew Center on the States recently released a major study analyzing the strengths and weaknesses of what states are currently doing to assess their tax incentives for economic development. (I should disclose that I reviewed an advance copy of this report, and made some comments on that draft.)

As the Pew study reveals, many state governments do not do a good job of evaluating their business tax incentives for economic development. Some states do not have good measures of the resources devoted to these programs. Other states do not have good studies measuring how these tax incentives are distributed to different types of businesses. Finally, many states do not do a good of providing reasonable estimates of the effectiveness of business tax incentives in achieving their economic development goals.

On the other hand, there are states that provide good models of how to evaluating business tax incentives for economic development.  Certainly we should have a governmental budget accounting system that accounts for the true costs of these programs. We should also demand an information system that collects the needed data on how these programs’ tax benefits are distributed.

Although evaluation of effectiveness is difficult, it can be done.  As I pointed out in my book “Investing in Kids”, we know something about what types of businesses are most affected by business tax incentives. For example, we know that business tax incentives are far more effective when provided to businesses that are what regional economists call “export-base” businesses, which means businesses that sell their goods and services to customers outside the state.  For industries whose main customers are inside the state, total industrial activity will be driven by total state demand, not by business tax incentives. Tax incentives to such non-export-base businesses will largely be wasted.

We also know that business tax incentives are far more effective when targeted at high-wage businesses with strong local supplier networks. Regional econometric models can be used to assess the multiplier effects of such businesses.

We also have some reasonable estimates of the likely moderate responses of export-base businesses to the cost reductions brought about by business tax incentives.  Even without new econometric evidence on a state’s business tax incentives, this previous tax research literature can be used to evaluate effects.  I have done such simulation exercises in several previous papers, including one on incentives in general, and the other on Michigan’s MEGA program.

Finally, we know that any evaluation of business tax incentives must take account of the financing of such incentives.  Business tax incentives in almost all cases are likely to be a net fiscal cost for a state’s budget. This cost must be financed by increases in other taxes or cuts in spending. Such tax increases or spending cuts will almost certainly have negative economic effects, through effects on both demand for goods and services, and effects on the supply of labor and capital to the state economy.

If we had better evaluation of business tax incentives, and if this better evaluation led to needed program reforms, this would lead to the elimination of some inefficient business tax incentive programs. Such elimination of inefficient programs would free up resources that could be used for other purposes, including early childhood programs.

I don’t think advocates for early childhood programs, or other investments in skills development, should take the position that all business tax incentives are bad. This position is inconsistent with the evidence, and makes it more difficult to link up skills development programs with a positive message for stronger state economic development.

But I do think that advocates for early childhood programs, along with advocates for better and more efficient government, should be asking that all state government programs be rigorously evaluated, including tax incentives as well as early childhood programs. Those programs that show strong evidence of effectiveness should be expanded. Those programs that are ineffective should be reformed. In such a merit-based competition for public resources, I think it likely that early childhood programs would do well.

Posted in Business incentives, Economic development, Incentive design issues | Comments Off on Improving evaluation of economic development programs

Making the case for pre-K: some fiscal and economic arithmetic

Posted on April 6, 2012 by timbartik

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.

Posted in Distribution of benefits, Early childhood programs, Economic development, National vs. state vs. local, Timing of benefits | Comments Off on Making the case for pre-K: some fiscal and economic arithmetic

Preschool is a cost-effective way of improving school readiness that can be implemented on a large scale

Posted on March 20, 2012 by timbartik

Julia Isaacs of the Brookings Institution has a just-released paper (March 19, 2012) that provides valuable comparisons of preschool versus other methods of increasing school readiness, at kindergarten entrance, for children from low-income families.

The backdrop to this paper is the finding, based on a previous paper by  Isaacs and University of Wisconsin Professor Katherine Magnuson,  that the “school readiness gap” between children from families below the poverty line, versus families with incomes above 185% of the poverty line (the cutoff in American schools for eligibility for a subsidized school lunch), is 27 percentage points. Children from poverty families have a school readiness percentage at kindergarten entrance of 48%, versus 75% for children from families above 185% of the poverty line.

Isaacs in this paper, and in the preceding paper with Magnuson, looks at how school readiness at kindergarten entrance is related to preschool attendance, as well as other variables such as maternal smoking, and family income. In the current paper, Isaacs uses these estimates, along with estimates of program costs and program effectiveness, to estimate the effectiveness of various interventions to improve school readiness. She asks two useful questions about effectiveness:

(1)    How effective in raising school readiness is the program or intervention per dollar of program cost?

(2)    Given what we know about how many children can reasonably be expected to be affected by this intervention when expanded to full scale, how large an effect might the intervention be expected to have in reducing the school readiness gap for all poor children?

Isaacs makes the following two conservative assumptions about the effectiveness and plausible scale of the preschool program.

(1)    She assumes that a preschool program will need to cost $7,200 to raise kindergarten readiness by about 9%, which is about one-third of the total gap between low-income and moderate income children in school readiness.

(2)    She assumes that the scale of her assumed preschool program is limited to increasing preschool enrollment among low-income children from current levels to 66% to enrollment levels of 90%.

The first assumption is conservative because there are studies that estimate that cheaper preschool programs than assumed by Isaacs can raise school readiness by about the same amount as Isaacs assumes, and that slightly more expensive preschool programs can raise kindergarten readiness by twice as much.  For example, in my recent study with Bill Gormley and Shirley Adelstein of Tulsa’s universal pre-K program, we found that a half-day pre-K program for 4-year olds that cost about $4500 per child could raise the test score percentiles of children from poor families by about 12 percentiles, which implies that it would probably raise kindergarten readiness by close to that amount.  A full-day pre-K program that cost about $9,000 per child could raise test score percentiles by 18 percentiles, which would imply a similar increase in kindergarten readiness.

The second assumption about scale of pre-K reform is conservative because it assumes that the only impact of moving to universal pre-K is to increase pre-K access for children from poor families from 66% to 90%. But instituting universal pre-K for all low-income children would probably also improve the quality of pre-K for the 66% who are already in some type of program that is called preschool.

Even with these two conservative assumptions, she gets the result that moving to universal pre-K for poor children would have the potential for improving school readiness of ALL poor children by 2.1% (e.g., a 9% improvement for the 24% of children who are newly added to preschool).  This policy intervention would close one-tenth of the school readiness gap between poor children and moderate income children, at a nationwide cost of only $1.6 billion. This is quite a powerful effect for such a relatively cheap intervention. And I think it would be easily possible with other defensible assumptions to get effects on school readiness of 3 or 4 times as much for a program of scale expansion and quality improvement that might cost between $2 and $3 billion nationwide. Both cost-effectiveness and potential scale of preschool reform may significantly exceed Isaacs’s estimates.

Even with these conservative assumptions, preschool compares quite favorably with other interventions when judged by its effects on school readiness at kindergarten entrance. This shouldn’t be a big shock, as kindergarten readiness is one of the key outcomes that high-quality preschool should be designed to significantly affect.

For example, smoking cessation programs for low-income mothers have a similar cost-effectiveness to preschool in raising school readiness, because these programs are so cheap per mother treated. But these programs have only one-20th the potential overall effect on school readiness for low-income children when expanded to full scale, primarily because (1) only 20% of low-income mothers smoke, and (2) smoking cessation programs only reduce smoking rates by 6% of those treated, both of which factors limit the potential scale of aggregate effects of these programs.

Nurse home visiting programs for disadvantaged first-time mothers also improve school readiness. However, nurse home visitation is about twice as expensive per a given improvement in school readiness as preschool, and only has about one-fourth the potential scale in its aggregate effects on school readiness. This is primarily because nurse home visitation programs have broader goals than school readiness for children, because such programs are limited in their coverage to first-time mothers, and because these programs show the greatest effects for the low-income mothers at highest risk.

Finally, we can improve school readiness by simply giving low-income families more money.  While income transfers may have many broad social benefits for low-income families, Isaacs’s estimates imply that such income transfers would have a cost, for a given increase in school readiness, of about 10 times the cost of achieving the same school readiness gains by expanded preschool.  Again, this should be no surprise: simply providing income transfers is not as targeted in its benefits for children in terms of school readiness as is true of providing preschool.

Therefore, Isaacs’s estimates, which are consistent with other estimates, suggest that moving to universal preschool for poor children is a cost-effective way of improving their school readiness that can be expanded to have sizable aggregate effects.

But is school readiness important? My prior paper with Gormley and Adelstein, which is based in turn on prior work by Harvard Professor Raj Chetty, suggests that how students are doing as of kindergarten is important to adult outcomes. Improving a child’s kindergarten test scores by 1 percentile is estimated to raise average adult earnings by about one-half of 1%. A 1 percentile increase in a group of children’s test school performance is likely to translate into an increase in kindergarten readiness by a similar amount. Therefore, if we can increase the kindergarten readiness of all poor children by 10% or so, we would be likely to improve their average lifetime incomes by at least 5%. This would be a quite large dollar figure.

In sum, expanding quality preschool to all low-income children can plausibly have substantial effects on improving the U.S. income distribution, as I have argued before.   Furthermore, universal preschool for children from working class and middle class families will also have sizeable effects on the future income of the broad middle of the U.S. income distribution.

Posted in Distribution of benefits, Early childhood programs | Comments Off on Preschool is a cost-effective way of improving school readiness that can be implemented on a large scale

Responding to six arguments of skeptics of early childhood programs

Posted on March 9, 2012 by timbartik

I recently gave two lengthy presentations on early childhood programs in Grand Haven, Michigan and Newaygo County, Michigan.  My draft speech, which goes for 8 pages, is here. The PowerPoint accompanying this speech is at the link at the bottom of this page, or more directly here.

The presentation is framed as responses to six skeptic questions/concerns raised about early childhood programs:

  1. Why should legislators and other policymakers believe advocates for early childhood programs when advocates claim the research evidence for these programs is convincing?
  2. Are early childhood programs really needed for any except the most disadvantaged kids?
  3. How does preschool help the entire local economy?  Even if it helps former program participants, won’t these former participants as adults just move somewhere else? Even if they stay, how will others in the local economy benefit?
  4. What are the short-term benefits of early childhood programs?
  5. Will preschool and other early childhood programs somehow undermine the role of parents? Wouldn’t it be cheaper to focus on parenting rather than focusing on expensive preschool and childcare programs?
  6. Why should the government take on preschool when we haven’t solved our many challenges with K-12 education? Won’t anything we do in preschool be undermined by problems in K-12?

The presentation provides what I hope are convincing answers to all these questions, with PowerPoint slides providing supporting data.

Posted in Early childhood programs, Timing of benefits | Comments Off on Responding to six arguments of skeptics of early childhood programs

Who benefits from higher skills?

Posted on March 2, 2012 by timbartik

Catherine Rampell of the New York Times has a good article this morning on state budget cuts to higher education. The article raises broader issues about how policymakers and the public should think about the benefits of investments in education and job skills, from early childhood on up.

The article points out that many states have significantly cut access to higher education programs, through both higher tuition and limiting the number of slots. These cutbacks include cutbacks to programs in which there is a high demand for workers. The article gives the example of cutbacks to nursing programs in North Carolina, despite the state’s shortage of nurses.

These cutbacks are occurring in part because of state budget problems due to the Great Recession and the phase-out of fiscal stimulus.  But if we look back over the last 15 years or so, many states also cut back budget support for higher education even prior to the recession.

This longstanding problem of state budget cutbacks is in part due to ideology. The notion has increasingly spread that education only benefits those educated, and that therefore students and/or their parents should foot the entire bill for higher education.

Professor Ron Ehrenberg, a well-known labor economist at Cornell, is quoted in the article as saying the following:

“There has been a shift from the belief that we as a nation benefit from higher education, to a belief that it’s the people receiving the education who primarily benefit and so they should foot the bill.”

Is this true? No, and the article paraphrases Ehrenberg as making the following argument:

 Economists have found that higher education benefits communities even more than it benefits the individual receiving the degree.

This is a key argument for why there should be public support for more investment in skills. For example, a chart I have been using in some of my talks (for example, see slide 7 from this PowerPoint) presents evidence based on the work of Professor Enrico Moretti of UC-Berkeley.

Consider a policy that raises the percentage of college graduates in a community by 1%. This policy raises the earnings of that 1% by 60%. The resulting DIRECT effect on the overall earnings of the community would be 0.6% (1% times 60%). But studies show that the earnings of the other 99% of the community will actually go up by 1.1%.

As this example indicates, the spillover benefits on the wages of other people of some people getting more skills are about twice the direct benefits for wages of those getting the skills.

What is going on here?  My wages depend on my neighbor’s skills for several reasons. First, if my neighbors at my firm are generally more skilled, my employer may find it easier to introduce new technologies or new production techniques, which will help boost my wages. Second, if my neighbors at nearby competing firms are more skilled, my employer may be better able to steal new ideas from these other employers, which will help my firm’s productivity and hence my wages.   Third, if my neighbors at nearby suppliers are more skilled, my employer will be better able to get better quality supplies at lower costs, which increases my employer’s competitiveness and my wages.

If the community benefits of education are three times the direct benefits, then obviously there is a strong rationale for the community to subsidize community members to get more education. This argument applies not only to higher education, but to early childhood education.

Posted in Distribution of benefits, Early childhood programs | Comments Off on Who benefits from higher skills?

Breaking the political cycle of inequality

Posted on February 26, 2012 by timbartik

Jared Bernstein has a great presentation summary and PowerPoint on what has gone wrong with broad-based economic growth in the U.S. Jared Bernstein is currently a Senior Fellow at the Center on Budget and Policy Priorities. Previously, he was Chief Economist for Vice President Biden, and before that a senior economist at the Economic Policy Institute.

Bernstein’s talk and PowerPoint are aimed at puzzling out why the U.S. economic model in the last 30 or 40 years seems to have produced so little in the way of economic benefits for most Americans, particularly for those of low or moderate income. The basic idea is that once an economy begins to have institutional or policy features that distribute most of the gains of growth to the top income groups, this increased economic inequality results in greater political power for the top income groups. This greater power leads to policies and institutions that further intensify the inequality in the distribution of the gains from growth.  The PowerPoint provides evidence for this “vicious cycle” occurring in the U.S. context over the past 30 or so years.

I think the issue is: what do you do about it? My own view is that we have to focus on broad policies that clearly benefit the “99%”, but include some progressivity within the policy, either by the policy’s inherent nature or by some design features that target low income and moderate income groups. In other words, I’m a big fan of Harvard sociologist Theda Skocpol’s  notion of “targeting within universalism“.  There’s no way of overcoming the political imbalance without a broad based coalition.

Universal early childhood programs fit this category of policy that both provide broad benefits and target low and moderate income families. The evidence suggests that well-run preschool programs deliver similar DOLLAR benefits on future earnings of different income groups.  The similar dollar benefits imply a policy that passes a benefit-cost test for each income group if it passes such a test for any group. The similar dollar benefits also imply a policy that is highly progressive in its income distribution effects, in that the similar dollar benefits will be a much higher percentage of income for low-income groups.  If you have enough policies that provide equal dollar benefits to all income groups, the resulting income distribution will be substantially flattened from the current highly tilted reality.

Are there other policies that fit this category? We need to find many such broad policies that provide broad benefits to many groups, because any single policy is nowhere near enough to overcome the current strongly persistent trends. I’m a big fan of early childhood policies, but they only provide one component of a possible solution to the current problems with the American economic model.

Posted in Early childhood programs, Economic development | Comments Off on Breaking the political cycle of inequality

Early childhood programs and local economic development: supply-side economics or Keynesian economics?

Posted on February 14, 2012 by timbartik

I recently encountered the statement that my book was in some way based on Keynesian economics, which is thought by some to be politically controversial.

I have nothing against Keynesian economics as a way of analyzing business cycles and macroeconomic policy. However, my book mostly has no connection to the debate over how to deal with business cycles.

Instead, the main concern in my book is how we as a society can address long-run economic development in our regional economies. By this I simply mean how we can best increase long-run earnings per capita and wealth in a particular state or local economy.

I’m not sure that the general public fully understands that almost all economists are “supply-siders” when it comes to thinking about long-run economic development issues. In the long-run, the wealth and prosperity of a state, a local economy, a nation, or the world depend upon the quality and quantity of the “supplies” of “factors of production”, in particular labor and capital. In the long-run, demand for goods and services will take care of itself if the supply is there. This may not be true in the short-run.

Where economists differ on long-run economic development policy is on HOW we can best increase the quality and quantity of capital and labor that is supplied to a state, local, or national economy. Is this best done through low taxes? Or is this best done through expanding productive public services?

Even these questions oversimplify the issue. If it were possible, we would like both very low taxes and very high levels of public services to promote long-run economic development. But this doesn’t add up to a balanced budget. So, we need to be selective. What public services are most productive in increasing the quality and quantities of supply of productive factors? What taxes to finance these productive public services are the least damaging to the productivity of the economy?

The essence of the case for early childhood programs is that these public services are among the most productive in raising the future quality of labor supply available to a local, state, or national economy. Even after we account for all the negative effects of the required tax financing, the net economic effects on earnings per capita far exceed the costs.

As for taxes, as a rule, the more targeted any lower taxes are on new job creation and investment, the more productive will such lower taxes be in helping long-run economic development.  Furthermore, business costs can also be lowered in a productive way for many small and medium sized businesses through public services, such as customized job training and manufacturing extension services.

As an economic development strategy, simply lowering taxes across the board makes no more sense than simply increasing public services across the board. Economic development strategies make more sense if they target the most productive services and the most productive tax breaks.

In sum, the estimates in my book have little relationship to the merits of Keynesian models. Rather, my conclusion, that enhancing early childhood programs raises the long-run quality of labor supply, and hence long-run economic development, is consistent with a general consensus among almost all economists. Economists do not always disagree. Almost all economists would agree with the proposition that labor quality is one of the most important determinants of long-run economic development.  Policies that can cost-effectively boost long-run labor quality are approved of by almost all economic theories.

Posted in Business incentives, Early childhood programs, Economic development, Incentive design issues | Comments Off on Early childhood programs and local economic development: supply-side economics or Keynesian economics?

Do early childhood programs pay for themselves?

Posted on February 8, 2012 by timbartik

Today I continue to provide brief responses to questions I have received at presentations.

Today’s question: “Do early childhood programs pay for themselves?”

In the long-run, high quality early childhood programs are self-financing; in the short-run, a significant portion of program costs are offset by savings in remedial programs.

In the long-run, after 20 years, high-quality early childhood programs provide more than enough added revenue, and savings in government costs, to more than cover their program costs. Earnings go up, which increases tax revenue. Welfare program usage goes down. Crime goes down, which saves on prison and police costs.

Even in the short-run, high quality early childhood programs reduce the need of some kids for special education services. These special education services can cost up to $10,000 extra per year, for up to 13 years during the K-12 years. Conservative projections indicate that within 10 years after a high-quality early childhood program begins, over half its program costs will be covered by reductions in special education costs.

However, in the short-run, early childhood programs require an initial expenditure of funds,  which is not immediately offset by cost-savings. This is why early childhood programs are an investment. The immediate extra costs of early childhood programs will yield future benefits, which include but are not limited to long-term financial benefits for the government and taxpayers. As with all investments with long-term benefits, the willingness to make such short-term sacrifices for long-term benefits requires the ability to be patient and take the long view.

The policy challenge posed by early childhood programs is part of a broader challenge facing the U.S. over many issues: do we have the ability as a society to take the long view in making important policy decisions?

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Given the many problems with our K-12 educational system, what’s the point of adding early childhood programs?

Posted on January 30, 2012 by timbartik

I’m continuing my series of brief responses to questions I have received at public presentations on early childhood programs.

Today’s question: “Given the many problems with our K-12 educational system, what’s the point of adding early childhood programs? Shouldn’t our first priority be to fix the K-12 system before trying to add on to it?”

High-quality early childhood programs can work even if the K-12 system faces challenges. For example, evaluations indicate that a Chicago preschool program, the Chicago Child-Parent Center program,  had strong effects on increasing high school graduation rates and adult earnings for children who later attended Chicago Public Schools.

Investing in early childhood programs can help improve the K-12 system. For example, if more children are in high-quality preschool, then K-12 teachers can up the level of what they teach and also will have fewer behavioral problems.

It is also true that if the K-12 system is better,  the benefits of early childhood programs preschool programs can be added to by better learning during the K-12 years. But the proper conclusion from this is that we need to both invest in expanded coverage and quality of early childhood programs, and invest in higher-quality K-12.  Although separate investments in either the early childhood system or the K-12 system can pay off, investing in both systems simultaneously has synergistic benefits for better adult outcomes for our children.

Posted in Early childhood program design issues, Early childhood programs | Comments Off on Given the many problems with our K-12 educational system, what’s the point of adding early childhood programs?

Which businesses should be interested in “the business case” for early childhood programs?

Posted on January 25, 2012 by timbartik

Sara Mead has a recent blog entry that comments on problems with the likely interest of business leaders in promoting state and local education. Her comment was in part prompted by Steve Perlstein’s comments on problems in local leadership for local economic development in the Washington, D.C. area.

The issue is as follows: as many businesses consolidate, including such businesses as banks, does this significantly weaken local business leadership that might support any local cause, whether it be early childhood programs, K-12 education, or local economic development? I commented on this problem for local economic development leadership in a 2003 paper.

If banks and other corporations consolidate, so that there is weaker local business leadership, who exactly in the business community are we supposed to make the case to for early childhood programs?

Several points should be noted. First, even if businesses are no longer headquartered in an area, their regional affiliates still have good reasons to support better local labor force quality. The only issue is whether institutionally, the global leadership of these large national and multinational corporations will give sufficient autonomy to regional affiliates to allow these regional affiliates to play an effective role in local campaigns for early childhood programs and other local educational priorities. No doubt this local autonomy varies from one large business to another.

Second, there remain many business leaders who are locally based, and who therefore have strong personal knowledge and investment in local issues such as early childhood programs. For example, real estate developers have a strong interest in policies that can raise local property values, which includes many educational improvements such as early childhood programs.

These locally-based businesses also include local retailers. The challenge is that many local retailers are quite small. It is therefore a challenge to reach this group. In addition, in many cases, because of their small size, such local businesses may have difficulty in finding the time and resources to be sufficiently involved in local policy issues. Perhaps they can be interested by tying educational initiatives into broader campaigns to boost local businesses, such as “buy local” campaigns.

Third, the business case can also be made to other local institutions, such as local hospitals and local higher education institutions. These institutions are typically quite tied to the local economy, and depend on the quality of the local labor force. In many communities, local hospitals and universities have played an increasing role in local economic development policy. They are logical candidates for playing a lead role in local campaigns for early childhood programs.

In sum, I think the increasing globalization of business still allows for appeals to local businesses and institutions for support for early childhood investment.  However, there may be a need for broadening what institutions are targeted for support, and a need for a change in how different businesses are approached.

Posted in Early childhood programs, Economic development, National vs. state vs. local | Comments Off on Which businesses should be interested in “the business case” for early childhood programs?