Is competition among states in early childhood education a good thing?

Posted on May 2, 2011 by timbartik

In an earlier post, I quoted Harvard professor John Donahue as saying that devolving a policy area to the states makes sense if “competition boosts efficiency instead of inspiring destructive strategies”. Does competition among the states in early childhood education boost efficiency? Or does it inspire destructive strategies?

My answer, in brief, is that competition, with some federal regulation to improve parent information, can boost efficiency. Without such federal regulation, the benefits of competition are more questionable.

We know that parents are increasingly valuing early childhood education. Higher-quality preschool programs can make it easier for employers to attract parents to move to a state. Higher-quality preschool can boost local property values by many times their costs.

However, this competitive process is more efficient if parents actually have some information on the relative quality of different states’ preschool programs. If parents know what programs are of better quality, they will be more attracted to the states with high-quality programs. This will put competitive pressure on states to offer high-quality programs.

This will require some federal effort to have similar evaluations of different states’ preschool programs. Such evaluations can be done rigorously by comparing student scores on different test measures at the beginning of preschool and at the beginning of kindergarten.  These measures can include both hard skills and soft skills.

A common argument for competition among states is that it allows states to be “laboratories of democracy”.  The state that is a good laboratory will be rewarded by being more attractive to businesses and households. But for this laboratory model of competition to work, someone needs to make sure that we have good data comparing these different state laboratories.

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Early childhood education versus other policy issues: the need for local action

Posted on April 29, 2011 by timbartik

A previous post argued that improving early childhood education in the United States deserved recognition as a major issue, alongside other major issues such as global warming. The argument was that improving early childhood education in the United States would be a cost-effective and politically appealing way of encouraging broader-based economic growth in the United States, which would help political and social conditions for solving other important issues.

One key difference between early childhood education and other important policy issue is the ability to deal with these policy issues at the local level. Compared to issues such as global warming, early childhood education is an issue for which local action is much more feasible and desirable.

In Harvard professor John Donahue’s 1997 book on American federalism, Disunited States, Donahue outlines some key criteria for devolving authority for a public policy area to the states, rather than to the federal government.  His summary statement is as follows:

“Do Devolve—Where It Makes Sense…Where states vary greatly in circumstances or goals, where external impacts are minor or manageable, where the payoff from innovation exceeds the advantages of uniformity, and where competition boosts efficiency instead of inspiring destructive strategies, the central government should stand clear.” (Donahue, 1997, p. 165)

For global warming, obviously one state government’s actions in reducing carbon dioxide emissions mostly has benefits for the rest of the world. External impacts are far larger than internal state benefits. Competition can lead to some states seeking to become pollution havens to gain some advantage in the competition for jobs.

For early childhood programs, as found in chapter 10 of my book, Investing in Kids, state-level economic development benefits of early childhood programs are two-thirds to three-quarters of their national-level benefits. The state-level benefits are clearly large enough for state-level action to make sense. Even at the local level, local benefits are not far below state-level benefits. A sufficient number of former child participants will stick around the state or local area as adults to boost local labor force quality and increase the area’s attractiveness to more and better jobs.

There are clear advantages of innovation in early childhood programs. We know something about what works in early childhood programs, in terms of reasonable class sizes and high-quality teaching and curriculum. But we need to know more. State and local areas should be experimenting with new ways of delivering and managing early childhood programs.

But how about competition among states in early childhood programs? Let me elaborate on that in a future blog post.

Posted in Early childhood programs, National vs. state vs. local | 1 Comment

How important is “early childhood education” as an issue, compared to other policy issues?

Posted on April 28, 2011 by timbartik

It could be argued that “early childhood education in the United States” is far less important than many other policy issues. The world faces major environmental issues such as global warming. Third World poverty is far more intense and oppressive than its American variant. We face issues in how to run a global economy, with large multinational corporations and intertwined financial markets, so as to keep the system stable and avoid having politics dominated by these powerful economic entities. We face religious and cultural strife. We face the challenge of combating global terrorism without giving up our freedoms. Closer to home, high immigration rates raise fears among many Americans.

Given all these global issues, what is the comparative importance of high-quality preschool for all American four-year-olds?  What is the comparative importance of making sure that all Americans have access to high-quality child care, high-quality pre-natal care, and if needed, help with parenting issues?

The United States remains the most powerful nation on Earth. A key issue is whether the U.S. will have the broad-based economic prosperity that helps support a mature and generous American politics.

As Harvard economist Benjamin Friedman argues in his 2005 book, The Moral Consequences of Economic Growth, a U.S. society with sluggish growth of per capita earnings for most households is likely to be mean-spirited in many ways. If most U.S. households are having a tough time economically, this tends to reduce their support for environmental protection. It reduces support for helping the Third World. Sluggish economic growth for most Americans contributes to increased fears of possible threats, such as terrorism, immigration, or religious or racial minorities. A bad economy increases the appeal of simple answers, even authoritarian answers.

Over the last three decades, real earnings have grown sluggishly for most Americans. For example, in research I did with my colleague Susan Houseman, we found that from 1979 to 2006, real wage growth for 90% of all U.S. workers lagged behind the productivity growth of the U.S. economy. If this bottom 90% had experienced wage growth as fast as overall U.S. productivity, their wages in 2006 would have been over $700 billion higher. Imagine how different the U.S. economy and U.S. culture would be if 90% of all workers had wages higher by $700 billion.

It is arguable that the sluggish growth of earnings for most Americans has contributed to the current mean-spiritedness and dysfunction of American politics.

For a better American politics and culture, we need to figure out how to improve the earnings of the lower and middle portions of the U.S. income distribution. High-quality early childhood programs are one way to significantly improve the earnings of all Americans, with particularly large relative benefits for low-income, working-class, and middle-income Americans.  Early childhood programs are not the only way to do so. But early childhood programs are particularly effective in boosting broad-based economic prosperity per dollar invested.  Early childhood programs have a strong political appeal. Who can in good conscience blame a four-year-old for the circumstances of his or her upbringing?

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How states vary in recent trends in access to pre-k

Posted on April 27, 2011 by timbartik

As mentioned in a previous post, the recent NIEER Yearbook shows that pre-K funding declined slightly in real (inflation-adjusted) dollars from fiscal year 2008-2009 to 2009-2010.

Overall access to pre-K was also relatively stable. For example, overall U.S. enrollment in state pre-K programs for 4-year-olds increased by 1.9%.

However, this was not true for all states. The three states with the biggest absolute drops in enrollment in age-4 state pre-K programs were Illinois, Ohio, and Michigan. These states experienced the following declines in age-4 enrollment:   Illinois: 17,011 fewer children, a drop of one-third; Ohio: 8,388 fewer children, a drop of 70%; Michigan: 4,310 fewer children, a drop of 18%.

What do these states have in common? These are Midwest manufacturing states that were hit relatively hard by the Great Recession. In addition, these are all states in which state-funded pre-K is less firmly established than in leading states such as Oklahoma. All three of these states were and are significantly below the national average of 26% of all 4-year olds enrolled in pre-K. Programs may be more politically vulnerable if a lower percentage of the population perceives direct benefits from the program.

In my home state of Michigan, 2008-2009 enrollment in state-funded pre-K was 19% of all 4-year olds. This was already significantly below the national average enrollment percentage in 2008-2009 of 25%.

As part of state budget cuts for the 2009-2010 year, Michigan cut funding in half for the portion of state pre-K funding that supported enrollment of at-risk children in private preschools. In addition, the state government gave K-12 districts the funding flexibility to repurpose their grants for pre-K to cover shortfalls in their general fund budgets for K-12.  This was a more hidden budget cut to overall pre-K through grade 12 funding.

In part as a result of these measures, Michigan enrollment of four-year-olds in state-funded pre-K declined from 19% of all four-year-olds in 2008-2009 to 16% of all four-year olds in 2009-2010. This puts Michigan even further behind national average enrollment percentages, which increased from 25% of all four-year-olds in 2008-2009 to 26% of all four-year-olds in 2009-2010.

Furthermore, these previous budget changes leave pre-K in Michigan even more vulnerable for the future.  Michigan K-12 education faces major funding cuts for the 2011-2012 school year. These funding cuts are likely to lead many districts to feel pressured to cut their support of pre-K. (State funding for pre-K in Michigan does not cover the full costs of running these programs. Local districts frequently supplement the state funds.)

For pre-K to thrive in states suffering economic challenges, there needs to be wider awareness that state investments in pre-K and other early childhood programs are essential parts of a state economic development strategy.

Furthermore, it is difficult to decouple pre-K funding from K-12 funding trends. True school reform includes expansion of productive new investments such as pre-K. Such school reform is difficult to undertake while the overall K-12 budget is being dramatically cut.

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State pre-k funding trends

Posted on April 26, 2011 by timbartik

The National Institute for Early Education Research (NIEER) today released its annual Yearbook on “The State of Preschool”.

The headline for this study is that for the first time since NIEER began tracking state pre-K spending and enrollment trends in 2001-2002, total state pre-K spending declined in real dollars (i.e., inflation-adjusted dollars) compared to the previous year. In real dollars, total state funding for pre-K declined by nearly $30 million, comparing fiscal year 2009-2010 funding with funding for the previous 2008-09 fiscal year.

However, I think the real battle for state pre-K funding will be determined during the current budget battle, over the fiscal year 2011-2012 budget. Right now, state pre-K is threatened with major funding cuts in many states, such as North Carolina, Iowa, and Georgia.

If one looks at state funding trends from 2008-2009 to 2009-10, pre-K actually survived rather well compared to some other budget areas. The decline in inflation-adjusted state funding for pre-K from 2008-09 to 2009-10 was only about one-half of 1%.

In contrast, let us look at the most current figures on state and local government spending, which come from the National Income and Product Accounts (NIPA) put out by the U.S. Department of Commerce.  State and local spending on gross investment, measured in inflation-adjusted dollars using the appropriate price deflators from the NIPA, declined from the 2008-2009 to 2009-2010 fiscal years by 3.1%.  State and local government real spending for current services (“consumption expenditures”) declined, from the 2008-2009 to 2009-2010 fiscal years, by 0.9%.

Total real state and local government spending from 2008-2009 to 2009-2010 increased by 1.4%. But this was due to a real increase of over 7% in government social benefit payments. This increase was largely driven by high unemployment due to the Great Recession.

Given how hard state and local governments were squeezed by the high unemployment of the Great Recession, higher social benefits squeezed many other areas of state and local government spending. This included much spending on investment and current public services. State pre-K spending did better than many other investment and service areas.

The battle over 2011-12 state spending is crucial. Almost all of the federal anti-recession aid to states has gone away by this fiscal year. States are largely left to their own resources. However, the economy is beginning to recover. States are beginning to consider how to position themselves to economically compete in a recovering U.S. economy. Will states choose to invest in pre-k and other early childhood programs as part of their economic recovery strategies? The answer is blowing in the political winds.

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Increasing effective teaching in preschool

Posted on April 25, 2011 by timbartik

The National Institute for Early Education Research (NIEER) recently published a useful policy brief on how to increase the quality of teachers in preschool. The policy brief is entitled “Degrees in Context:  Asking the Right Questions about Preparing Skilled and Effective Teachers of Young Children”. The policy brief is by Marcy Whitebook, director of the Center for the Study of Child Care Employment at the University of California-Berkeley, and Sharon Ryan, an associate professor at Rutgers and a NIEER researcher.

The entire policy brief is well worth a careful reading, and makes many useful suggestions. I want to emphasize here two important points that I took away from this policy brief.

As Whitebook and Ryan make clear, the policy debate over preschool teacher quality has often focused too much on the narrow issue of whether preschool teachers should be required to have bachelor degrees. This is too narrow a focus for at least two reasons.

First, many of the bachelor programs that try to prepare preschool teachers have some limitations. Many of these programs do not particularly focus on the special challenges of preschool teachers, do not have instructors with preschool experience, and may not include adequate student teaching experience in preschools.

Thus, without improvements in these preschool teacher preparation programs, requiring a BA degree may do less than we might hope to improve preschool teacher quality.

Second, improving preschool teacher quality may depend at least as much on workplace policies at preschools that make preschool teaching a more attractive career path. Workplace policies must attract high-quality new entrants to preschool teaching, and retain more high-quality teachers.

Although making a workplace and career path more attractive involves many features of the job, higher wage rates are one key component. If preschool teacher wages are higher, it will be easier to attract high-quality teachers, both with and without bachelor degree credentials. If preschool teacher wages are too low, it will be difficult to attract high-quality teachers, even if we require a bachelor degree credential.

I would add to this that we need to think about what incentives preschools have to try to attract and retain high-quality teachers. Higher teacher wages makes it easier to attract and retain high-quality teachers. But will preschools use the greater availability of high-quality applicants to increase the average quality of teachers? They will more surely do so if preschools can reap some rewards for being high-quality, and suffer some consequences for being low-quality.  This requires that the programs that fund preschools have some reasonable procedures for measuring quality of preschools, and policies to have this quality reflected in funding and regulatory responses.

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The economic development benefits of reducing the earnings penalty of mental illness

Posted on April 22, 2011 by timbartik

In chapter 12 of Investing in Kids, I consider a wide variety of improvements in a state’s human capital, and their potential economic development benefits for a state economy.

One human capital improvement I consider is reducing the earnings penalty from mental illness. Meta-analysis of the research literature by Aos et al (2006) suggests that about 3.8% of the adult population has a serious mental illness. The average earnings penalty from serious mental illness is to reduce earnings by 15 percent.

I estimate the state economic development benefits from eliminating this earnings penalty for one person with serious and persistent mental illness. Alternatively, this estimate could be viewed as reducing half the earnings penalty for two persons with mental illness, or a fourth of the earnings penalty for four persons with mental illness. These economic development benefits are based on estimates on how the number and quality of jobs in a state economy will respond to stronger job skills in the state’s labor force.

I conclude that a policy that reduces the earnings penalty from mental illness for one person, or the equivalent, will provide economic development benefits for a state economy of $91,000. These economic development benefits are the increased present value of per capita earnings for state residents.

Such economic development benefits are sufficient to justify quite costly interventions to more effectively treat chronic and persistent mental illness.  For example, “assertive community treatment” has been shown by experimental studies to pass a benefit-cost test.

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Preserving programs versus making needed investments

Posted on April 21, 2011 by timbartik

Irene Sage, at the blog “Eye on Early Education” of the Massachusetts-based Strategies for Children, has a useful post summarizing recent federal funding trends for early childhood programs.  Another useful recent post on recent federal funding decisions is by Laura Bornfreund of Early Ed Watch, a blog run by the DC-based New America Foundation.

The summary is that the final 2010-2011 federal appropriations for early childhood programs largely preserved these programs. Head Start had been threatened with a major cut. It ended up being increased by $340 million, to $7.575 billion. The Child Care and Development Block Grant was increased by $100 million, to $2.227 billion. Finally, a provision was added allowing states to use “Race to the Top” funds, which are intended to support comprehensive educational system reforms, for improvements in early education and care.

This preservation or slight percentage increase in federal early childhood funds is good news. However, it should not be confused with the major investments needed for early childhood programs to reach their full potential.

For early childhood programs to have major effects on aggregate American productivity, economic growth, and standards of living, two conditions must hold. First, we must make investments in early childhood programs that are high quality, in that they have a high impact per dollar invested. Second, we must make large dollar investments.  We cannot achieve large aggregate economic impacts without investments that are both high-quality and large.

Increasing early childhood investments by $440 million in the U.S. as a whole is an increase in investment of a little less than $1.50 per capita. To reach large aggregate impacts on the U.S. economy, we probably need to make investments in early childhood programs of an additional $20 or $30 per capita, at a minimum. For example, the estimated cost of universal pre-k education for all four-year olds is about $30 per capita. Universal pre-k for all four-year-olds would have large aggregate impacts on either the national economy, if pursued nationally, or on a state economy if pursued by one state.

I don’t think the federal government over the next 5 or 10 years is likely to make early childhood investments of the scale needed.  If the needed investments are to be made, they are more likely to be made at the state level.

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Why “100% sales factor apportionment” is relevant to state policy debates over business tax cuts vs. public investments in early childhood programs

Posted on April 20, 2011 by timbartik

An important issue in state policy debates is the relative effectiveness, in boosting state economic development, of these two alternatives: cuts in state corporate taxes; investments in productive public services such as early childhood programs.

A crucial point is that in at least 20 states (see Mazerov 2010), the critical “export-base” businesses in the state economy are already largely exempt from the main state corporate tax. This exemption is largely due to basing the “apportionment” of corporate income to that state on sales in the state. Because these export-base businesses are already exempt from the main state corporate tax, across the board reductions in the state corporate tax are unlikely to have much effect upon state economic development.

What are “export-base” businesses and why are they important to state economic development? “Export-base” is regional economics jargon for businesses that sell their goods or services to businesses or residents from other states, or at least potentially substitute for imports of goods and services from other states.

The crucial idea is that incentives or other measures to promote the health of a state’s businesses will have a much larger effect on the state economy if directed at export-base businesses. If these businesses expand, new dollars are brought into the state economy from outside the state. This increased economic activity and the accompanying dollars will then recirculate within the state economy, with multiplier effects that further boost state economic activity. The export-base businesses will buy some of their supplies from other state businesses. The additional workers in these export-base businesses and their suppliers will spend some portion of their increased wages on retail businesses located in the state.

In contrast, if we offer an incentive or any other measure to increase economic activity of a non-export base business, this is much less likely to have large effects in expanding the state economy. The non-export base business by definition sells its goods and services to state residents or other state businesses. Therefore, any expansion of this individual business’s sales is likely to reduce sales of other businesses in the same state. The immediate net effect on state economic activity is likely to be small.

In the long-run, improving the business climate or competitiveness for all non-export base businesses may have some indirect effects in boosting state economic output. If all non-export base businesses are more competitive, this will eventually lower the equilibrium prices these businesses will charge. Lower prices at retailers will increase real wages of state workers, which will attract some in-migrants. Lower prices at business suppliers will attract some export-base businesses. However, these indirect effects are long-run and are unlikely to be as large as the state economic development benefits from directly targeting export-base businesses for assistance.

State economic development policymakers are aware of the crucial importance of export-base businesses. One policy many states have adopted to differentially attract such businesses is apportioning a business’s tax base to the state based on sales in that state.

Consider a state corporate income tax levied on business profits.  One issue is how to levy such a tax on businesses with operations in many states. In general, it is difficult to precisely allocate profits across all the states in which a business has operations. Such profit allocation will depend in part on what arbitrary internal prices the business decides to assign to shipments between its various operations.

Therefore, it has been customary for many years for states to levy taxes based on a business’s overall U.S. profits, with a formula to apportion profits to each state in which the business has operations. The traditional formula was a “three-factor” formula: one third each based on the payroll, capital stock, and sales of each state.

But many states in recent years have shifted to a formula that overweights sales, or even only uses sales to apportion a multi-state corporation’s profits across states. A crucial point is that the Supreme Court has ruled that a state cannot tax a corporation’s profits if it simply has sales in the state, with no personnel or capital stock in the state. Therefore, only the states in which the corporation has personnel or capital stock can tax the corporation, even if the corporation has sales in all 50 states.

A practical implication of this 100% sales factor formula, as administered by many states, is that only a fraction of the corporation’s profits are taxed by any state, and even a smaller portion by any particular state.

Consider a corporation that has operations in two states. Suppose that its sales are distributed across all states according to population. Suppose that the two states in which it has operations are of “average size”, meaning that the corporation has 2% of its sales in each of these states.

Then, under the way many states administer 100% sales factor apportionment, the corporation’s total national profits would be multiplied by 2% in each state before being multiplied by the state’s corporate income tax rates. Only 4% of this multistate corporation’s profits would be taxed by any state.

Formula apportionment only applies to multistate businesses. A business with operations in only one state would have 100% of its national profits taxed by that state. Thus, compared to a multi-state corporation, a single state corporation would pay 50 times as much in profits tax to that state.

Although the correlation is not perfect, multi-state corporations are much more likely to be export-base than single-state corporations. Thus, 100% sales factor apportionment acts as a large subsidy to export-base businesses.

For more on sales factor apportionment, see Mazerov (2005).

The point is that if export-base businesses are already largely untaxed by the state’s main corporate tax, then across the board cuts in a state’s main corporate tax will not much affect a state’s export-base businesses.  The tax cuts will help non-export base businesses. This tax cut will in the long-run have some modest effects in boosting a state economy. But these effects will be far lower than for business tax cuts that target the export-base sector, or business tax incentives that target new investment in the export-base sector. Across-the-board business tax cuts are not a particularly effective way to boost state economic development. Cutting educational investments to finance across-the-board business tax cuts does not make sense as an economic development strategy.

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More devilish details about educational investments versus business tax cuts

Posted on April 19, 2011 by timbartik

A previous post responded to a question from an early childhood and education program advocate, who is trying to convince state legislators and their staff that educational investments compare favorably with business tax cuts. Their question was: “Do we have the evidence to say that early childhood education and school performance is more important to state economic development than the business tax?” My answer in the previous post was that high-quality early childhood programs had evidence of economic development benefits, per dollar, of four to six times the benefits per dollar of across-the-board business tax cuts.

However, the answer is more complicated if we consider other types of education spending and business tax cuts.

High-quality early childhood programs are among the most cost-effective educational investments. Other investments in education may also have benefits exceeding costs, such as lower class size in early elementary school, or investments in better teacher quality. But in general, most other spending on K-12 education will not have as high a benefit-cost ratio as is true for early childhood programs.

Furthermore, well-designed business tax incentives can be more cost-effective than across-the-board business tax cuts. A well-designed business tax incentive can yield state economic development benefits of about $3 per dollar invested, which is comparable to the returns to high-quality early childhood programs. Business incentives that provide high-quality services to businesses, such as customized job training and manufacturing extension services, can have even higher ratios of benefits to costs.

High-quality early childhood programs and well-designed business incentives complement each other. Early childhood programs help develop a high-quality labor supply for a state, and well-designed business incentives help improve the level and quality of labor demand in the state.

I think advocates for early childhood programs and other well-designed educational investments should be willing to advocate for higher household taxes to fund an economic development strategy that includes these programs. Households should be willing to pay higher taxes for programs that have good evidence of boosting local economic prosperity. This includes targeted investments in both high-quality educational programs and targeted investments in high-quality business incentives. Such targeted investments will be cheaper and more effective than simply making across-the-board changes in spending levels and tax rates.

If the devil is in the details, let’s get the details right. Let’s demand for all proposed economic development policies, both for educational programs and business taxes, that they be equally accountable for showing rigorous evidence of cost-effectiveness.

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