Early Childhood Education and the U.S. Labor Market Crisis

Guest post by Tim Bartik, Senior Economist, Upjohn Institute for Employment Research

As Steve Barnett’s recent post indicated, the U.S. faces a prolonged labor market recovery. As of today, the U.S. would need more than 10 million additional jobs to return to the employment to population ratio at the beginning of this recession (December 2007). Based on typical job growth rates, the U.S. will take five to 10 years before returning to “normal” employment conditions.

Given our labor market crisis, every area of public policy must consider how it might improve the labor market.  This includes early childhood education. Advocates of early childhood programs need to answer how early childhood programs might deal with the U.S.’s labor market problems.

First, the labor market crisis means that early childhood programs are more needed than ever to make up for negative effects of parents’ labor market problems on young children.  Research by Greg Duncan and others shows that parental income when a child is ages zero to five has large effects on the child’s later earnings as an adult. Once we control for parental income when a child is five or less, parental income at later ages does not much affect the child’s later earnings as an adult. This fits in with the assumption of early childhood education that children are more malleable to various influences (parental income, quality of preschool, etc.) when they are young.

Therefore, more children are at risk than before the economic crisis. The economic returns to early childhood education occur for all children, but are greater for at-risk children.  The labor market crisis implies that investments now in early childhood education will have particularly high rates of return.

Second, early childhood programs provide economic stimulus by spending more money.  Preschool teachers spend their salaries, which stimulates the economy. There is a net stimulus even once we adjust for the taxes needed to finance early childhood education.  In my new book, Investing in Kids, I estimate that the spending associated with preschool (with some effects from the child care provided) will immediately boost earnings by about 22 percent of the preschool spending.

Third, we should explore packaging early childhood programs with programs that can help parents find jobs, such as well-designed adult job training programs. There could be some positive synergies between early childhood programs and job training programs for parents. The early childhood program provides time for parents to engage in job training programs. Parents may be more forward-looking with respect to their over lives if they believe that their child’s needs are being addressed.

In chapter 7 of Investing in Kids, I estimate that a universal preschool program, if packaged with high-quality job training at a community college for disadvantaged parents, could lead to strong short-run economic returns. After five years, the combined earnings effects of the package are about half the annual costs of both universal preschool and training together.

These calculations do not allow for the possible synergies between preschool and job training programs. The rates of return to adult job training may be higher for parents whose children are in high-quality ECE.  Furthermore, as the work by Duncan and his colleagues indicates, increasing parental income may complement ECE by increasing adult earnings for former child participants in ECE.  We could use some experiments that combine ECE with job training for parents.

Therefore, early childhood education can deliver important short-term labor market benefits.  This should not lead us to overlook ECE’s long-term economic benefits. My book, Investing in Kids, devotes much attention to showing that high-quality early childhood programs pay off for state and local areas.  The payoff is a stronger state and local economy in the long-run.  This stronger state and local economy is reflected in an increased present value of state residents’ earnings, which significantly exceeds the costs of ECE.  Further discussion is available on my own blog.