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“Early childhood development programs are rarely portrayed as economic development initiatives, and we think that is a mistake.”
Really? Who said that? Some good government, business-illiterate know nothing? Some mush-minded, no-connection-to-the-real-world, human service advocate?
Sorry, no! Those are the words of Rob Grunewald and Arthur J. Rolnick, Associate Economist and former Senior Vice President, respectively, for the Federal Reserve Bank of Minneapolis.
“Such programs, if they appear at all, are at the bottom of the economic development lists for state and local governments,” the bankers continue. “They should be at the top. Most of the numerous projects and initiatives that state and local governments fund in the name of creating new private businesses and new jobs result in few public benefits. In contrast, studies find that well-focused investments in early childhood development yield high public as well as private returns.”
In case you are wondering whether these opinions, originally expressed in 2003, are out of synch with broader current thinking among leading economic figures, consider the comments, just delivered this March by Ben Bernanke, Chairman of the Federal Reserve Board – the nation’s top banker.
“Research increasingly has shown the benefits of early childhood education and efforts to promote the lifelong acquisition of skills for both individuals and the economy as a whole,” Bernanke said in a speech before the Citizen’s Budget Commission here in New York. “The payoffs of early childhood programs can be especially high… Investing in such programs can pay off even from the narrow perspective of state budgets; of course, the returns to the overall economy and to the individuals themselves are much greater.”
With the nation once again poised to debate economic stimulus and jobs creation proposals, it might be wise to review the considerable bang for the buck – both short and long term – that can be gained by ramping up early childhood programs here in New York and across the country.
The Long Term
Much of the economic development rationale for investing in early childhood education programs is, in fact, long term – sometimes very long term. It is based on the kinds of outcomes cited by Bernanke to justify his conclusions. Children who participate in well-structured early childhood programs will be more likely to complete high school while also being less likely to require special education classes, be arrested or become a victim of abuse or neglect.
Since high school graduates typically earn substantially more than dropouts and college graduates earn even more still, economists predict increased lifelong wages as part of the payoff for program participants. Reduced expenses for special education, jails and prisons are benefits to society as a whole, as is reduced pain and suffering for victims of crimes that might otherwise have been committed.
The first and perhaps best known study to demonstrate the long term positive impacts of a well-structured early childhood program was that of the Perry Preschool in Ypsilanti, Michigan during the early 1960s. The Perry Preschool program provided a daily 2 ½-hour classroom session for 3- to 4-year-old children on weekday mornings and a 1 ½-hour home visit to each mother and child on weekday afternoons. Teachers were certified to teach in elementary, early childhood and special education, and were paid 10 percent above the local public school district’s standard pay scale. During the annual 30-week program, about one teacher was on staff for every six children.
Since 1962, researchers have tracked the performance of children from low-income black families who completed the Perry School program and compared the results to a control group of children who did not participate. Follow-ups were done annually from 3-11; at 14, 15, 19, 27 and most recently at ages 39-41.
This ongoing research has demonstrated the lifelong positive impacts of the Perry Preschool program to be significant. By age 27, a significantly higher percentage of the program participants (71%) had completed high school or received a GED certification, compared to the non-program participants (54%). The educational achievement gap was even wider for females – with 84% of program participants completing high school or earning a GED versus 35% for non-program participants.
Similarly, children who attended the Perry Preschool program did better economically than children who did not attend. By age 27, 29% of program attendees reported monthly earnings of $2,000 or more, versus only 7% for the non-program group. Here, the differences were stronger for males, with 42% of program participants reaching the higher wage category compared to just 6% of those who did not attend. For women, employment rates were much higher: 80% for program attendees versus 55% for non-program participants. Significantly more program participants owned their own homes (36% versus 13%) and owned second cars (30% versus 13%). Conversely, fewer program participants (59%) than nonparticipants (80%) had received public assistance or other public social services as adults.
The Perry Preschool experience also significantly reduced the levels of future criminal activity among program participants. By age 27, program group members, on average, had been arrested only half as many times as the non-program group. One-fifth the number of program participants as non-program participants had been arrested five or more times. Meanwhile, only 7% of the program group had ever been arrested for drug dealing, versus 25% of the no-program group.
Other long term studies of well structured early childhood programs have demonstrated similar impacts. The Chicago Child-Parent Center (CPC) has provided a half-day of prekindergarten and family-support services to economically disadvantaged children since 1967. A study of 2004 data when participants were 24 years old, showed that those who attended the program were less likely than the comparison group to have been retained in a grade, to have required special education, to have been arrested for a crime or to have been a victim of abuse or neglect.
Show Me the Money!
While this all sounds great, is it really a good investment? Those who have looked at the Perry Preschool and other long-term longitudinal studies of pre-school program participants say the answer is an emphatic yes!
In 1992, when the Perry Preschool participants were 27, researchers calculated that for each participant, an initial investment of $12,356 (in 1992 dollars) had already generated a return of $108,002 – or $8.74 in benefits for every $1.00 of public investment.
Where were these benefits found?
• $70,000+ in reduced costs of crime for society and crime victims;
• $30,000+ in higher wages for participants and resulting tax revenues for government;
• $7,000+ in reduced educational expenses for special education services, grade retention, adult remedian,etc.
By 2005, when those pre-schoolers had turned 40, these savings as measured by comparison with the non-program participant control group, had grown to $244,812 versus an initial program investment of $15,166 (all in 2000 dollars). That now represented a 16/1 benefit-to-cost ratio.
To put these extraordinary benefit-to-cost ratios into more traditional financial terms, our Federal Reserve Bankers Rob Grunewald and Arthur Rolnick prefer to use an “internal rate of return” analysis, i.e. the average “interest rate” your initial investment would be returning, year in and year out, after adjusting for inflation and the actual timing of cash flows.
Their estimate on the annual rate of return for the Perry Preschool investment once the kids had reached age 27? A cool 16%.
That’s right, 16% per year on average, adjusted for inflation, for a total of 27 years!
Nice call, society!! BooYA!!!! We’re pretty sure Mad Money’s Jim Kramer isn’t likely to match those returns any time soon.
“To comprehend how extraordinarily high these rates of return on prekindergarten investments are, consider that the highly touted real rate of return on the stock market that prevailed between 1871 and 1998 was just 6.3%,” says Robert G. Lynch, Chair of the Economics Department at Washington College and author of the book Enriching Children, Enriching the Nation: Public Investment in High Quality Pre-Kindergarten.
One of the problems with these kinds of cost/benefit analyses, however, always comes down to a critical question. Who gets the benefits and who pays the costs?
“While participants and their families get part of the total benefits, it is noteworthy that the benefits to the non-participating public and government are larger and, in and of themselves, tend to far outweigh the costs of these programs,” says Lynch. “Even from the narrow perspective of budgetary policy, investments in prekindergarten programs pay for themselves because the costs to government are outweighed by the positive budget impacts that the investments eventually produce.” Lynch puts the public budget benefit to cost ratios at 2.5-to-1 for the Perry Preschool and 2.9-to-1 for the Chicago CPC program.
Jobs Now!
These long-term economic development rationales for investments in early childhood education programs largely focus on the future benefits to society of having a more highly educated population and workforce, better equipped to acquire the skills necessary to find employment and business opportunities in an increasingly competitive world.
But, what about the need to jump start the nation’s perilously stagnant economy and begin creating new jobs right now? What role can and should investments in early childhood programming play as part of the nation’s economic stimulus plans?
Early childhood programs already represent an extremely sizeable segment of the local economy. In 2004, the NYS Child Care Coordinating Council partnered with Cornell University’s Department of City and Regional Planning to conduct an economic impact analysis of the child care sector (including early child care and education) in New York State. The results were remarkable:
• 22,000 small businesses, including not-for-profit and for-profit centers, Head Start and Pre-kindergarten programs and 11,000 family child care providers;
• 119,000 workers including child care teachers, aides and staff, representing one of the fastest growing employment sectors in the economy. The study found that the child care sector employs four times more people than the dairy sector and is comparable in size to the local/interurban passenger transit system and the hotel and lodging sector;
• $4.7 billion in total revenues, including parent fees and government investments in early education programs;
• In total, the system then served 750,000 parents and 622,000 children.
Due to its particularly “local” and labor intensive nature, economists do believe that there are significant short-term – as well as long-term – stimulative advantages that come with investing in early childhood programs.
“It would certainly create jobs,” says Timothy J. Bartik, Senior Economist at the Upjohn Institute for Employment Research and a leading proponent of state and local investments in early childhood programs as a economic development strategy. “There might be a few more jobs per dollar of expenditure because wage rates in the sector may be a little lower.”
How many jobs might be created by a significant new nationwide investment in early childhood programming?
The Center for Children’s Initiatives has published a model budget for an extended day, center-based program, with six classrooms serving a total of 105 children. The $1.4 million budget plan called for 21 full-time staff – a director, assistant director, six head teachers, six assistant teachers, six aides, and one family resource social worker -- as well as funding for consultants, substitutes, administrative expenses and non-personal costs. In total, it seems reasonable to assume that this budget would directly employ an average of 24 people.
Simply using this CCI budget proposal as a guideline, a $1.4 billion investment would create 1,000 of these centers, providing early childhood programming for 105,000 additional children and directly creating 24,000 new jobs.
The job growth wouldn’t stop there however. Like all new government spending, the effects continue to ripple through the economy. “Early Childhood Teachers buy groceries and go out to dinner,” says Bartik. It is known as the “multiplier effect”.
And, when it comes to child care, the multiplier effect is particularly powerful, say economists.
“Child care and pre-school programs are more likely to buy supplies and services from local businesses than other industries,” says Rob Grunewald. “The jobs that are created tend to be local and he folks who work for child care programs are more likely to spend their money locally.”
“Regional economic impact analysis shows that in New York State each additional dollar invested in child care generates a total of $1.52 - $2.00 in the state economy as a whole,” writes Mildred Warner of Cornell University who led the 2004 economic impact study. “This is higher than other sectors (retail, manufacturing, education) that are more typical targets for economic development or state investment.”
So, our $1.4 billion investment would probably generate an extra 12,000 jobs on top of the 24,000 directly employed by the centers, giving us a total of 36,000 new jobs.
In fact, additional annual expenditures of $1.4 billion in early childhood programming could easily generate even more jobs, depending on the mix of programmatic options – centers, family based care, family group care, etc,-- that were utilized.
What are the chances?
President Obama’s new American Jobs Act includes $30 billion in proposed education aid for states to help avert layoffs of existing teachers or to hire new ones. It also includes a provision by which states can set aside up to 10 percent of their allocation -- $3 billion nationally – for early childhood programs. Since the money would cover a two-year period, it means states potentially could allocate up to $1.5 billion annually towards shoring up their existing early childhood programs… or investing in new ones..
“$30 billion may not be that big an amount when you are looking at K-12 education, but $3 billion is immense compared to what states currently spend on pre-school programs,” says Timothy Bartik. While he doubts that many states will want to devote a full ten percent of their allocations to early childhood programs, the option to use these funds would be there to make strategic new investments. “There may be states that decide to begin investing in new programs in the hope that two years from now the economy will recover in time to support the effort going forward.”
Just having an explicit mention of early childhood programming, with an option to set aside funding for investments, in the President’s proposal, is important, says Betty Holcomb, Director of Policy for the Center for Child Care Initiatives. “We have been excited and heartened by the way Federal officials have stood up to protect early childhood programs,” she says.
Now, all Congress has to do is pass the bill.
Investing in the Future
Although the thought of saving or creating jobs now is both important and appealing, the economic development power of early childhood programs comes in what they can mean for the nation’s future, say economists.
“I certainly think that child care stimulus should be discussed as part of any program for creating jobs in the short term,” says Timothy Bartik. “However, the more important reason for these investments is the long term benefits for society. It is what we will be doing to create a more productive work force that is capable of driving a bigger economy.”
“While I agree that there are economic development opportunities in the near term, from a policy standpoint it is the benefits that come from changing the prospects for kids and significantly increasing our future human capital in the long run that should be driving policy,” says Rob Grunewald of the Federal Reserve Bank of Minneapolis. “In terms of strategic economic growth investments, nothing is better than early childhood development programs.”
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