The economic case for preschool - Timothy Bartik

[Applause] In this talk today, I want to present a different idea for why investing in Early Childhood education makes sense as a public investment. It's a different idea because usually when people talk about Early Childhood programs, they talk about all the wonderful benefits for participants in terms of, you know, former participants in preschool—they have better K-12 test scores, better adult earnings. Now, that's all very important, but what I want to talk about is what preschool does for state economies and for promoting state economic development.

And that's absolutely crucial because if we're going to get increased investment in early childhood programs, we need to interest state governments in this. The federal government has a lot on its plate, and state governments are going to have to step up. So, we have to appeal to them—legislators in the state government—and turn to something they understand: they have to promote the economic development of their state economy.

Now, by promoting economic development, I don't mean anything magical; all I mean is that early childhood education can bring more and better jobs to a state, and can thereby promote higher per capita earnings for the state's residents. Now, I think it's fair to say that when people think about state and local economic development, they don't generally think first about what they're doing about child care and early childhood programs. Um, I know this. I've spent most of my career researching these programs. I've talked to a lot of directors of state economic development agencies about these issues, a lot of legislators about these issues. When legislators and others think about economic development, what they first of all think about are business tax incentives, property tax abatements, job creation tax credits. You know, there are a million of these programs all over the place.

So, for example, states compete very vigorously to attract new auto plants or expanded auto plants, handing out all kinds of business tax breaks. Now, those programs can make sense if they, in fact, induce new location decisions. And the way they can make sense is by creating more and better jobs. They raise employment rates and raise per capita earnings of state residents. So, there is a benefit to state residents that corresponds to the cost that they're paying by paying for these business tax breaks.

My argument is essentially that early childhood programs can do exactly the same thing: create more and better jobs, but in a different way. It's a somewhat more indirect way. These programs can promote more and better jobs by—you build, you invest in high-quality preschool, it develops the skills of your local workforce. If enough of them stick around, that higher-quality local workforce will be a key driver of creating jobs and creating higher earnings per capita in the local community.

Now, let me turn to some numbers on this. Okay, if you look at the research evidence that's extensive on how much early childhood programs affect the educational attainment, wages, and skills of former participants in preschool as adults, you take those effects, you take how many of those folks would be expected to stick around the state or local economy and not move out, and you take research on how much skills drive job creation, you will conclude from these three separate lines of research that for every dollar invested in early childhood programs, the per capita earnings of state residents go up by $2.78. So, that's a 3 to 1 return.

Now, you can get much higher returns of up to 16 to 1 if you include ancillary benefits, if you include benefits to former preschool participants who moved to some other state. But there's a good reason for focusing on these $3 because this is salient and important to state legislators and state policymakers, and states are going to have to act. So, there is this key benefit that is relevant to state policymakers in terms of economic development.

Now, one objection you often hear—or maybe you don't hear it because people are too polite to say it—is, "Why should I pay more taxes to invest in other people's children? What's in it for me?" The trouble with that objection is that it reflects a total misunderstanding of how much local economies involve everyone being interdependent. Specifically, the interdependency here is that there are huge spillovers of skills. When other people's children get more skills, that actually increases the prosperity of everyone, including people whose skills don't change.

For example, numerous research studies have shown if you look at what really drives the growth rate of metropolitan areas, it's not so much low taxes, low costs, or low wages. It's the skills of the area; particularly, the proxy for skills that people use is the percentage of college graduates in the area. So, when you look at metropolitan areas such as the Boston area, Minneapolis-St. Paul, Silicon Valley, these areas are not doing well economically because they're low cost. I know; if you ever tried to buy a house in Silicon Valley, it's not exactly a low-cost proposition. They are growing because they have high levels of skills.

So, when we invest in other people's children and build up those skills, we increase the overall job growth of a metro area. As another example, if we look at what determines individuals' wages and we do statistical exploration of what determines wages, we know that an individual's wages will depend in part on that individual's education. For example, whether or not they have a college degree.

One of the very interesting facts is that, in addition, we find that even once we hold constant statistically the effect of your own education, the education of everyone else in your metropolitan area also affects your wages. So specifically, if you hold constant your education, and you stick in the percentage of college graduates in your metro area, you will find that has a significant positive effect on your wages without changing your education at all. In fact, this effect is so strong that when someone gets a college degree, the spillover effects of this on the wages of others in the metropolitan area are actually greater than the direct effects.

So, if someone gets a college degree, their lifetime earnings go up by a huge amount—over $700,000. There's an effect on everyone else in the metro area by driving up the percentage of college graduates in the metro area, and if you add that up, it's a small effect for each person, but if you add that up across all the people in the metro area, you actually get that the increase in wages for everyone else in the metropolitan area adds up to almost a million dollars. That's actually greater than the direct benefit to the person choosing to get an education.

Now, what's going on here? What can explain these huge spillover effects of education? Let's think about it this way: I can be the most skilled person in the world, but if everyone else at my firm lacks skills, my employer is going to find it more difficult to introduce new technology, new production techniques. So, as a result, my employer is going to be less productive. They will not be able to afford to pay me as good wages. Even if everyone at my firm has good skills, if the workers at the suppliers to my firm do not have good skills, my firm is going to be less competitive competing in national or international markets. And again, if the firm is less competitive, they will not be able to pay as good wages.

Then, particularly in high-tech businesses, they're constantly stealing ideas and workers from other businesses. So, clearly, the productivity of firms in Silicon Valley has a lot to do with the skills not only of the workers at their firm but the workers at all the other firms in the metro area. So, as a result, you know, if we can invest in other people's children through preschool and other high-quality early childhood programs, that not only helps those children, but it helps everyone in the metropolitan area gain in wages, and we'll have the metropolitan area gain in job growth.

Another objection you sometimes hear to invest in early childhood programs is concern about people moving out. So, you know, maybe Ohio is thinking about investing in more preschool education for, uh, children in Columbus, Ohio, but they're worried that these little Buckeyes will, for some strange reason, decide to move to Ann Arbor, Michigan, and become Wolverines. And maybe Michigan will be thinking about investing in preschool in Ann Arbor, Michigan, and be worried these little Wolverines will end up moving to Ohio and becoming Buckeyes. And so they'll both under-invest.

The data is that over 60% of Americans spend most of their working careers in the state they were born in—over 60%. That percentage does not vary much from state to state; it doesn't vary much with the state of the economy, whether it's depressed or booming. It doesn't vary much over time. So, the reality is if you invest in kids, they will stay, or at least enough of them will stay that it will pay off for your state economy.

Okay, so to sum up, there's a lot of research evidence that early childhood programs, if run in a high-quality way, pay off in higher adult skills. There's a lot of research evidence that those folks will stick around the state economy, and there's a lot of evidence that having more workers with higher skills in your local economy pays off in higher wages and job growth for your local economy. And if you calculate the numbers for each dollar, we get about $3 back in benefits for the state economy.

So, in my opinion, the research evidence is compelling, and the logic of this is compelling. So, what are the barriers to getting it done? Well, one obvious barrier is cost. So, if you look at what it would cost if every state government invested in universal preschool at age four—full-day preschool at age four—the total annual national cost would be roughly $30 billion. So, $30 billion is a lot of money.

Um, on the other hand, if you reflect on that, the U.S. population is over 300 million. We're talking about an amount of money that amounts to $100 per capita, okay? $100 per capita, per person is something that any state government can afford to do. It's just a simple matter of political will to do it. And, of course, as I mentioned, this cost has corresponding benefits. I mentioned there's a multiplier of about 3—2.78 for the state economy in terms of over $80 billion extra earnings.

And if we want to translate that from just billions of dollars to something that might mean something, what we're talking about is that for the average low-income kid, that would increase earnings by about 10% over their whole career. Just doing the preschool—not improving K-12 or anything else after that, not doing anything with college tuition or access—just directly improving preschool, and we would get 5% higher earnings for middle-class kids. So, this is an investment that pays off in very concrete terms for a broad range of income groups in the state's population and produces large and tangible benefits.

Now, that's one barrier. I actually think the more profound barrier is the long-term nature of the benefits from early childhood programs. So, the argument I'm making is that we're increasing the quality of our local workforce and thereby increasing economic development. Obviously, if we have a preschool with four-year-olds, we're not sending these kids out at age five to work in the sweatshops, right? You know, at least I hope not. So, you know, we're talking about an investment that, in terms of impacts in the state economy, is not going to really pay off for 15 or 20 years.

And, of course, America is notorious for being a short-term-oriented society. Now, one response you can make to this—like some have done in talks—is that people can talk about benefits for these programs in reducing special education and remedial education costs. There are benefits parents care about. Preschool maybe we'll get some migration effects from parents seeking good preschool, and I think those are true. But, in some sense, they're missing the point. Ultimately, this is something we're investing in now for the future.

And so, what I want to leave you with is what I think is the ultimate question. I mean, I'm an economist, but this is ultimately not an economic question; it's a moral question. Are we willing, as Americans, are we as a society still capable of making the political choice to sacrifice now by paying more taxes in order to improve the long-term future of not only our kids but our community? Are we still capable of that as a country? And that's something that each and every citizen and voter needs to ask themselves: Is that something that you are still invested in? That you still believe in the notion of investment—that is, the notion of investment where you sacrifice now for a return later?

So, I think the research evidence on the benefits of early childhood programs for the local economy is extremely strong. However, the moral and political choice is still up to us as citizens and as voters. Thank you very much.