Economic diversity in pre-K, peer effects, and universal versus targeted programs

A recent report by Jeanne Reid and Sharon Lynn Kagan of Columbia University, written for The Century Foundation, argues for greater consideration of economic diversity as a feature that helps determine quality in pre-K programs.

The report documents that low-income children not only have lower rates of attendance in preschool, but also are disproportionately enrolled in lower-quality preschool programs. Moreover, preschool classrooms are overwhelmingly likely to be highly segregated by income. As they point out, Head Start programs, by their very design, are largely restricted to children from families below the poverty line.

This economic segregation is troubling for many reasons. In a diverse, democratic society, it is important that families and children learn to live together, which depends upon common experiences.

In addition, as Reid and Kagan point out, research suggests that low-income children experience significantly greater learning gains if the preschool classroom is income-integrated. This greater learning is thought to occur due to peer effects from being exposed to middle-class children who, on average, tend to enter preschool with higher literacy and math skills.

At the same time, Reid and Kagan argue that the research evidence suggests that these peer effects are asymmetric: middle-class children’s learning seems not to be as subject to such peer effects. This means that integrating preschool classrooms by income contributes to greater learning for low-income children, without sacrificing the learning of middle-income children.

The report goes on to discuss policy implications. The authors argue for policies that include:

  • Encouraging programs to enroll both publicly-funded and tuition paying students;
  • Encouraging Head Start programs to make greater use of their flexibility to enroll 10% of their students from above the poverty line;
  • Locating more preschools where they are accessible to a variety of income groups;
  • Providing greater financial support for transportation to preschool programs;
  • Adding more professional development for preschool teachers in how to deal with diversity in preschools.

I was surprised that the authors omitted discussion of the hot political issue of universal versus income-targeted preschool programs. (Witness the recent debate in Minnesota.) In principle, government programs that only subsidize preschool for low-income children can include middle-income children who pay tuition. But in practice, income integration with private tuition charged to the middle-class is more difficult to arrange. Among other factors, some middle-class parents have some reluctance to enroll their child in a more diverse setting, despite the research.

In contrast, if a preschool program is universal in that it is free to all students, then middle-income families have more incentive to participate. Of course, full income integration in individual preschool classrooms will not happen automatically with universal preschool, any more than it does in public K-12 education. Procedures for allocating preschool slots, recruitment efforts, transportation availability, and preschool locations may all need to be arranged in a manner that encourages diversity of children in preschool classrooms. But universality is helpful in encouraging greater income integration.

Reid and Kagan have made a valuable contribution by arguing that greater economic and racial diversity in preschool classrooms is a goal worth pursuing, as it contributes to preschool quality. In my opinion, that goal will be more easily pursued if we begin with government support for universal preschool, rather than income-targeted preschool.

Posted in Distribution of benefits, Early childhood program design issues | 1 Comment

The challenges posed by “short-termism” in corporate decision-making, and what it implies for policies to promote broader prosperity

Professor William Lazonick of the University of Massachusetts Lowell has a provocative recent paper, written for the Institute for New Economic Thinking, outlining his views on how some of the adverse trends in income inequality in the U.S. are due to changes in corporate decision-making incentives. The paper is entitled “Labor in the Twenty-First Century: The Top 0.1% and the Disappearing Middle-Class”, thus implicitly referring to Thomas Piketty’s recent celebrated book, “Capital in the Twenty-First Century”.

(Lazonick previously wrote an award-winning book for the Upjohn Institute on the same themes, “Sustainable Prosperity in the New Economy”. His new paper further develops his thinking and is shorter, but the previous book presents more in-depth research evidence.)

The brief summary of Lazonick’s argument is as follows. In recent years, U.S. corporations have become overly focused on boosting their short-term stock prices. This is in part due to the structure of the compensation of corporate executives, which is increasingly weighted towards stock options. Corporations boost their stock options by such measures as using their profits to buy back their own company’s stock. As a result, corporations under-invest in R&D, physical capital, and their own workers, and have incentives to excessively lay off workers. The consequence of this process is a redistribution of income to the top 0.1% of the income distribution, which is dominated by corporate executives, and a reduction of good jobs for the American middle-class. Furthermore, this process weakens the long-run competitiveness of the U.S. economy and long-run growth.

What implications does this paper have for how public policy might boost broadly-shared prosperity for all Americans? This particular Lazonick paper does not outline specific solutions, but the obvious implication is to consider policies that would seek to reform corporate governance, corporate pay, and the stock market to encourage long-run thinking. As Lazonick argues in another paper, written for the Brookings Institution, public policy might discourage excessive reliance on stock options in corporate executive pay, and discourage companies from trying to buy back their own stock. We might consider changes in corporate governance, for example encouraging more corporations to include workers on their boards, and to have goals other than maximizing short-term stock prices, as has for example been discussed in Thomas Geoghegan’s recent book.  For example, we might give more favorable tax treatment to corporations that were reorganized under such broader corporate charters. As Bob Lerman has argued, we might consider measures that would encourage the stock market to place a greater value on a corporation’s human capital, by encouraging better measurement of the “human capital” of a corporation’s workers. As Larry Summers has argued, we might make it more difficult for activists to threaten a takeover or restructuring of companies that are in their view failing to maximize short-run shareholder value.

How does this issue relate to other policies that promote broadly-shared prosperity? For example, how does this issue relate to early childhood education programs that seek to promote broadly-shared prosperity by better development of skills for all children? I don’t think that any of these arguments mean that “labor supply” policies – policies that attempt to improve the labor market by boosting the quantity or quality of labor supply – are ineffective or unneeded. There is research that shows not only that more education helps individuals, but also showing that improving educational attainment will help overall wages, employment rates, and per capita income, for example research by Enrico Moretti on how more skills has spillover benefits for everyone in a metro area’s economy.  Existing research on how businesses respond to increased skills can be used to estimate how more skills will help those getting skills and improve income equality, for example see this recent report by Hershbein, Kearney, and Summers.

In other words, even if corporations are more reluctant than they should be to make long-term investments in their workforce and their competitiveness, corporations will still show some response to an increased skill level of the workforce. Labor supply policies still will make a difference.

However, it is the case that labor supply policies will be more effective if we also work on the labor demand side, that is we also work directly to affect the behavior of businesses.  For example, preschool programs would have even greater aggregate effects on the U.S. economy if U.S. corporations could be encouraged to be more willing to complement these preschool investments with their own investments in workers’ skills.

The converse is also the case: labor demand policies that affect business decision-making will be more effective in advancing broad prosperity if accompanied by well-designed labor supply policies such as preschool. Even if we restructure corporate incentives so that corporations are significantly more interested in investing in their workers, these investments are likely to go mainly to workers who start out with good hard skills and soft skills. Preschool and other educational reforms will help corporate governance reforms to be more successful in broadening opportunities.

Labor demand and labor supply policies go together. (I have argued this before, including at book length.) Both types of policies are needed to improve broadly-shared prosperity.

Posted in Business incentives, Economic development

Review of Robert Putnam’s new book, “Our Kids”: strong on vivid individual stories illustrating the problems; weaker on showing solutions

Robert Putnam’s new book, “Our Kids”, does an excellent job of telling individual stories of the American poor, and in particular recounting how their lives are affected by their experiences in childhood and adolescence.  (Robert Putnam is a political science professor at Harvard, perhaps best known for his work on the importance of social capital in societies, most famously in his book “Bowling Alone“.) These stories encourage insight and empathy with the constraints that inhibit equal opportunities for all Americans. Among the constraints are family and parenting problems, troubled neighborhoods, bad schools, and lack of sufficient quality job opportunities. But these constraints are illustrated through individual stories more than through the usual social science data presentation.

The book is weaker on providing solutions. The book does outline some policy solutions to enhance opportunities for persons growing up in low-income families, including: income transfers for low-income families, parenting improvement programs, preschool, and school improvements. However, these solutions are only relatively briefly outlined in one chapter. The book does not present detailed enough program proposals that allow the specific costs and benefits of the various proposals to be discussed.

As a result, I think many readers will not believe that these solutions will come close to solving the overwhelming problems that are made so vivid in the individual stories presented in the bulk of the book. I think it is important for policy wonks to make clear what specifically their proposed policies will do to solve the problems identified in their policy analysis , as I have tried to do in my own work, for example in my recent book on preschool, outlining both benefits and costs.

In addition, the book spends relatively little time on outlining how policy solutions might address the overall structure of opportunities in the American economy. In other words, the book is more concerned with improving the quality of the poor’s labor supply, rather than addressing labor demand: the number of good jobs available to all Americans including the poor. A more comprehensive anti-poverty strategy for helping all our kids should include both labor supply and labor demand approaches, as I have argued before.

However, in a society that seems to become more divided over time, “Our Kids” will help many readers empathize with the children of the underclass, and better understand the challenges they face in growing up and succeeding. This increased empathy may help motivate some readers to support finding better solutions to improve opportunities for all of “Our Kids”.

Posted in Distribution of benefits

Head Start impacts: the importance of the counterfactual

Two recent research papers, by Kline and Walters, and by Feller et al., suggest that Head Start has much larger impacts when it is compared to the alternative of “no preschool”. This finding tends to increase the likelihood that Head Start has benefits greater than costs.

The Kline/Walters and Feller et al. papers are in part responding to an important research puzzle: how to reconcile the results of the randomized Head Start experiment with prior Head Start research. The Head Start randomized experiment found relatively small immediate effects of Head Start on test scores, and these effects quickly faded. In contrast, prior Head Start research has tended to find larger short-term effects, and more persistent effects on other outcomes, including adult outcomes.

For example, a meta-analysis (by Shager et al.) of numerous studies of Head Start found short-term test score effects that were around twice the effects estimated in the Head Start experiment (0.27 standard deviations versus effects generally between 0.1 and 0.2 standard deviations). In addition, while  the Head Start experiment’s results faded by over 70% by grade 3, and were no longer statistically significant, , other research (for example, by Deming) has found  predicted effects on adult earnings that exceed the earnings effects that would be predicted based on early test score effects (Figure 4.1 in my recent book, From Preschool to Prosperity ).

How can these results be reconciled? One possibility, raised by numerous researchers, is that the alternative preschool options to Head Start have expanded and improved over time. Most Head Start studies are estimating the effects of Head Start relative to whatever choice would otherwise be made by Head Start participants, whether that choice is home care or preschool. Over time, non-Head Start preschool options have expanded, and may have improved in quality. This would tend to reduce Head Start’s net impact in newer studies compared to prior studies. This is particularly important for studies of Head Start’s long-term impact, as these studies necessarily are analyzing Head Start as it existed some time ago.

In the Head Start experiment, it appears that in many cases, assignment to the “treatment group” shifted children from other preschool programs to Head Start.  For example, Kline and Walters estimate that among the 4-year-old participants in the Head Start experiment, 41% of the families induced by the treatment assignment to enroll in Head Start would have otherwise enrolled their 4-year-old in some other preschool. The net impact of the Head Start experiment on child outcomes will be a weighted average of Head Start’s effects relative to preschool, for families who otherwise would have enrolled their child in preschool, and relative to home care for families who would have chosen that option. If the other preschool is similar in its effects to Head Start, this reduces the estimated net effects of Head Start.

The new research by Kline and Walters, and by Feller et al. al. , explicitly analyze the choice by families among options of Head Start versus other preschool versus home care, and how this is affected by treatment group assignment in the Head Start experiment. These studies explicitly estimate how this choice might be influenced by a wide variety of variables. For example, if a state has invested more in state preschool programs, we would expect the counterfactual alternative to Head Start to be state-funded preschool for more families (and this is found in both the Kline/Walters and Feller et al. studies). In addition, if the child has younger siblings, we expect (and we find in Feller et al.) that a greater proportion of the Head Start treatment group would have enrolled their 3-year old or 4-year old in some preschool anyway.

These two new studies, after explicitly trying to control for what alternatives parents would have chosen to Head Start, find much larger effects of Head Start versus home care than for Head Start versus other preschools. Both Kline and Walters, and Feller et al., find very small or non-existent effects of Head Start on test score outcomes when those Head Start effects are compared to the test score effects of other preschools that would have been chosen. In contrast, the effects of Head Start versus home care on test score outcomes are much larger.

As a result, Feller et al. estimate short-run test score effects of Head Start versus no preschool that are about 60% greater than the average impact of simply being assigned to the Head Start treatment group (0. 23 standard deviations versus 0.14 standard deviations when using the same test measures).  Kline and Walters also find short-run test effects of Head Start versus no preschool that are about 60% greater than the average effect of simply being assigned to the Head Start treatment group (0.37 standard deviations versus 0.23 standard deviations using the same test score measures).

Both Feller et al and Kline/Walters also conclude that for longer-term Head Start analyses, when proper controls are done for the alternatives facing families, estimates of test score impacts become much more imprecise, and cannot rule out more sizable outcomes. Therefore, it is not true that the Head Start impact study definitely showed that Head Start impacts quickly faded.

How is all of this important for public policy? In two ways. First, for public policy, the most important analysis is of the net benefits and costs of preschool compared to its alternatives. This will be a weighted average of: Head Start’s benefits versus no preschool compared to Head Start’s costs; Head Start’s net benefits, if any, over other preschool programs, compared to Head Start’s extra costs, if any, over other preschool programs.  Kline and Walters present some analyses that when benefit-cost analyses properly adjust for the reality that Head Start substitutes for other government-financed preschool programs, which have some costs and benefits, then Head Start probably has benefits that are 15% greater than costs.

Second, this suggests that policy analysis of the benefits and costs of any preschool program, Head Start or otherwise, needs to consider who will be drawn into the program, and the program’s relative benefits and costs compared to the alternatives that families would otherwise have chosen for their child. What the preschool program substitutes for may vary with how the program is designed and promoted, or where program sites are located. For example, Kline and Walters present evidence that some of those who are least likely to sign up for Head Start may be least likely to sign up for it, so expansions of the programs may have greater benefits. Similarly, another recent analysis of the benefits and costs of Head Start, by Bitler et al., finds that children who otherwise would have had very low test scores benefit the most from Head Start.

Finally, a more technical note. The recent research by Feller et al. and Kline/Walters reaches different conclusions compared to some other research on Head Start’s impacts versus no preschool, but I find the Feller et al. and Kline/Walters methodologies to be more convincing on this topic. First, the recent research’s conclusions differ from those of a dissertation by Peter Bernardy, which compares Head Start treatment group members with control group members not in any preschool by matching on observables, and finds no evidence of lasting Head Start impact from this comparison. But Kline and Walters show that simply controlling for observable variables does not make as much of a difference as actually looking at variations in the alternatives facing families due to different state preschool programs or different family circumstances. Second, in the recent Bitler et al. paper, they do not find that Head Start’s net impacts vary with the variation in alternatives to Head Start chosen by different demographic groups. (This is a side point in the Bitler et al. paper, which mainly focuses on the distribution of test score impacts.) But the Feller et al. and Kline/Walters paper show that controlling for the alternatives that would be selected by families probably requires controlling for a larger set of potential selection variables than demographic characteristics, such as the local availability of preschool and family circumstances.

The bottom line is that the conclusion that the recent Head Start experiment shows that preschool does not work is a misinterpretation of the results. We do need to think about how we can structure expansions of Head Start or other preschool programs so that those who may benefit the most are reached by these expansions. This may require that these program expansions be structured to help attract families who otherwise would not be enrolled in any preschool.

Posted in Distribution of benefits, Early childhood program design issues, Local variation in benefits

What are the best paths to prosperity for localities and the nation?

I have a new paper published that bears on the following important issue: when will local economic development incentives – various types of customized tax breaks or services to individual businesses – be most effective in helping improve economic well-being?

In trying to improve local prosperity, state and local governments, and the federal government, face a choice between labor demand policies – policies that directly try to increase job creation by businesses, the non-profit sector, or government – and labor supply policies, which seek to improve the quantity or quality of local labor supply, which will indirectly encourage the creation of more or better jobs. Of course, governments can also pursue both labor demand and labor supply policies, and in most circumstances both types of policy are needed. But there is a question of which type of policy deserves more emphasis.

Even once we have decided whether local or national circumstances justify more of an emphasis on labor demand versus labor supply policies, there is the important issue of which specific labor demand or labor supply policies will be most effective. There is a wide variety of labor demand policies, and a wide variety of labor supply policies, and not all policies classified in each category will have equal effectiveness in raising employment rates and wages for local residents. (For example, labor demand policies might include both tax breaks for private business, and public employment; labor supply policies might include attracting the “creative class”, attracting other immigrants, and improving the educational system from early childhood through adulthood) But the issue of when to emphasize labor demand or labor supply policies is the initial issue we must address, and that is what I am considering in this new paper.

It might seem intuitively plausible that labor demand policies make the most sense when local economies are constrained by lack of labor demand, and labor supply policies make the most sense when local economies are constrained by lack of labor supply. But these intuitively plausible statements have not, up until now, been backed by much empirical evidence.  To guide wide public policy, we must make sure that we check to see whether our intuitions are still warranted when we look at the data.  In addition, we need to make our intuition more precise with numbers: how much of a difference does the local balance between labor demand and supply make to the relative effectiveness of different policies.

In this new paper, I conclude that policies to boost labor demand will do much more to boost local prosperity if the local unemployment rate is initially high than when local unemployment rate is initially low. Specifically, I estimate that if local unemployment is initially near full employment, at around 4% unemployment, labor demand policies that create local jobs will mostly lead to in-migration. Less than 1 in 4 of these new jobs will boost the employment of local residents.  In addition, because of the in-migration, local governments will face fiscal strains, as in many cases the new infrastructure and public service costs from new residents will significantly exceed the tax revenues generated.

This “leakage” of new jobs away from benefitting local residents, and towards benefitting in-migrants, enormously reduces the benefit-cost ratio of any labor demand policy, whether it is a tax break for a manufacturing plant, or customized job training, or a public works jobs program.

In contrast, when local unemployment is initially high, for example at close to 10%, then about half of new jobs created by labor demand policies will go to local residents. Furthermore, because there will be less in-migration, the job creation will have much greater fiscal benefits for local governments.

These findings obviously have implications for local policymakers: local labor demand policies should be more aggressive when local unemployment is high, and be far more restrained when local unemployment is low. But these findings also have implications for state governments and the federal government. Many federal and state government policies have implications for the distribution of labor demand across different local labor markets. From a labor market perspective, these findings imply that such job redistribution policies should, where possible, lean towards redistributing more job creation towards high-unemployment local economies.

What about local labor supply policies? There is no good evidence on how their effectiveness varies with local economic conditions. Many local labor supply policies, such as preschool and other education policies, are long-term policies. Economists usually assume that in the long-run, labor demand will adjust to match the quantity and quality of labor supply. If so, then in the long-run, local labor supply policies will pay off similarly in a wide variety of local economic circumstances. But there actually is not much in the way of empirical evidence to either support or refute this supposition. This is an area that deserves more research attention.

Posted in Business incentives, Economic development, Local variation in benefits, National vs. state vs. local, Timing of benefits

March 25 interview on WWJ Radio Detroit, “Every Kid Matters”

I was interviewed on March 25 as one of three panelists on a hour-long show on WWJ Radio Detroit. The interview was part of a series of radio broadcasts, on the last Wednesday of each month at 7 p.m.,  sponsored by the Max M. and Marjorie S. Fisher Foundation, the W.K. Kellogg Foundation and The Kresge Foundation.

The main point of the show was to explore the research evidence on why early childhood investment makes sense. The other panelists were Dr. Moriah Thomason of Wayne State University, who focused on the neuroscience of early childhood development, and Dr. Cheryl Polk, the President of the High Scope Educational Research Foundation, who discussed High Scope’s work with Perry and the importance of quality and soft skills in early childhood development. My focus was more on the social science evidence on early childhood investments, and how these investments produce important long-term economic benefits.

A story and podcast for this panel interview show can be found here.

Posted in Uncategorized | 2 Comments

The power of local coalitions: Kalamazoo’s progress on pre-K

For my speech on Monday February 23rd to the Kalamazoo Rotary Club, I looked more in-depth at state and local statistics on pre-K enrollment. Due to expanded state funding, the percentage of Michigan 4-year-olds in state-funded pre-K has increased from 21% in the 2012-13 school year to 33% in the 2014-15 school year. Kalamazoo County has done much better, with the county’s percentage of 4-year olds in state and local funded pre-K increasing from 22% in the 2012-13 school year to 52% in the 2014-15 school year. This is still below leading states such as Oklahoma, which has 74% of all four-year olds in state-funded pre-K, but is a lot of progress in two years.

Why has Kalamazoo County been more successful? I think the success has been due to a well-designed local coalition that has helped develop more quality pre-K programs and has more aggressively done outreach to make families more aware of affordable pre-K options. This coalition includes: KRESA (the Kalamazoo Regional Education Service Agency, the intermediate school district), which administers Head Start and the state’s Great Start Readiness Program (GSRP), the state pre-K program, and also supports the local Great Start Collaborative, which helps coordinate local efforts; Kalamazoo County Ready 4s, a local non-profit group that seeks to promote high-quality universal pre-K in Kalamazoo County through tuition scholarships, supplements to the state funds per pre-K slot, and training for local pre-K providers and teachers (I serve on the board of KC Ready 4s); a variety of public and private pre-K providers.

Because of this coalition, Kalamazoo County has been more aggressive in seeking the available state funds through the GSRP program and in being able to use those funds. In contrast, other communities around the state have been forced to return unused funds to the state. But in Kalamazoo County, with the training from KC Ready 4s and support from KRESA, more local pre-K providers are high-quality programs that are eligible for state funding. KC Ready4s provides tuition supplements to the GSRP funds to some pre-K providers, which makes these programs better able to participate in GSRP. With a coordinated effort from the entire coalition, including some door-to-door recruitment through the local community organizing group ISAAC in under-served neighborhoods, more parents are aware of their pre-K opportunities. Finally, KC Ready 4s directly provides sole financial support for pre-K for over 3% of all 4-year olds in Kalamazoo County who do not receive Head Start or GSRP funding.

I think this has broader lessons for pre-K around the country. Local implementation matters. Effective pre-K not only requires funding, but a local infrastructure to help train and develop providers and promote availability of the programs to parents. This seems to have been successfully done in other states, for example in North Carolina’s Smart Start and More at Four programs. And at least in Kalamazoo County, this local coalition seems to have been effective in multiplying the effects of the state pre-K funding.

There are still many challenges to pre-K’s future in Kalamazoo County and Michigan in general. These challenges include, perhaps most importantly, that the real inflation-adjusted funding per child for a half-day slot of $3,775 is still about 20% below the $4,518 funding per child (2015 dollars) for a half-day slot that Michigan provided in the 1990-2000 period (source: author’s calculations using the Consumer Price Index, and per-slot funding data from Michigan). As in other areas of Michigan education funding, Michigan’s struggling economy and deliberate political choices have led to nominal dollars for educational programs falling well behind inflation. The consequence of such low funding is that local pre-K programs must struggle to afford to pay pre-K teachers enough to consistently attract and retain high-quality teachers. Public school pre-K programs must choose to cross-subsidize pre-K with funds diverted from scarce K-12 allocations, and private pre-K programs must seek to raise supplementary funds from such sources as KC Ready 4s. This situation is not sustainable long-term without some more reliable sources of adequate pre-K funding.

This Michigan challenge is also a national challenge. Even as states begin to rebuild pre-K funding as the U.S. continues recovering from the Great Recession, a key issue is: are states as interested in providing the needed funding per pre-K slot to ensure quality as they are in simply expanding the number of pre-K slots? There is always the temptation to try to get large numbers for pre-K slots provided, with less concern about whether the funding is adequate to consistently support pre-K quality.  But what is ultimately important is access to quality pre-K programs, not simply access.

For some local news coverage of my February 23 speech, see the article by Julie Mack in the Kalamazoo Gazette. The complete speech and PowerPoint are at the Upjohn Institute website. The bulk of the speech and PowerPoint did NOT focus specifically on Kalamazoo. Rather, the speech provided some information about why the Head Start experiment does not show that pre-K effects fade in adulthood, and why pre-K education is a particularly attractive economic investment in skills development.

Posted in Early childhood program design issues