Chicago preschool economics

Where will the U.S. find workers to replace its aging baby boomers?

By Andrew Leonard
Published May 1, 2007 9:03PM (EDT)

You gotta love the "Chicago school." In their paper "The Productivity Argument for Investing in Young Children," University of Chicago economist James Heckman (a Nobel Prize winner in 2000) and University of Michigan doctoral candidate Dimitriy Masterov marshal an impressive argument in support of early intervention preschool programs for children from disadvantaged backgrounds as the best tool for ensuring later success in life. The evidence compiled is conclusive. Children from such backgrounds who gain access to such programs are more likely to graduate high school, less likely to end up in jail, and will score higher on aptitude tests. And the longer society waits to try to fix the problem -- by boosting funding for secondary school education, or by providing tuition help for college, for example -- the less of a positive effect you will have. (Thanks to Jason "Healthcare Economist" Shafrin for the link. For an easy-to-digest synopsis of Heckman's argument you can read his Op-Ed in the Wall Street Journal from last year, which I found via Mark Thoma's EconomistsView.)

For a civilized society, that should be enough, right? Helping out disadvantaged children at the point in their lives where it can do the most good is the obvious moral thing to do, isn't it? As the authors note, "most analyses have cast the issue of assisting children from disadvantaged families as a question of fairness or social justice."

But not Heckman and Masterov. For them, the real challenge is that the U.S. economy is facing a looming shortage of skilled workers.

The labor force is aging and young replacements for old workers are increasingly in short supply compared to the 1980s. The aging of the American workforce raises serious problems for the future of American productivity growth. The work force of prime-age workers, fueled by the entry of baby boomers, propelled U.S. economic growth in 1980-2000. However, we cannot count on this source of growth in the next twenty years. Indeed, the largest components of growth in the workforce will come from older workers as the Baby Boom cohort ages. Hence, a major source of vitality in the U.S. workforce will be lost. Future workforce growth will come from older workers and from demographic groups in which, for a variety of reasons, dysfunctional and disadvantaged families are more prevalent.

Not only are the baby boomers becoming decrepit, but "educational attainment rates" are stagnating. "College-going rates have stalled out" and "the high school dropout rate has increased over time if one counts GEDs as dropouts, as one should, because GEDs earn the same wages as dropouts, and graduate from college at the same rate as dropouts."

In short: The United States is faced with a dire crisis that needs no elaboration by tiresome moral or social equity considerations: "The growth in the quality of the workforce, which was a mainstay of economic growth until recently, has diminished." So get those poor kids from single-family households in the ghetto some quality preschool care! We need better workers!

The razor-sharp focus on productivity and efficiency concerns leads to some classic Chicago-school number-crunching:

Lochner and Moretti also calculate the social savings from crime reduction associated with completing secondary education. They show that a 1 percent increase in the high school graduation rate would yield $1.8 billion dollars in social benefits in 2004 dollars. This increase would reduce the number of crimes by more than 94,000 each year. The social benefits include reduced losses in productivity and wages, lower medical costs, and smaller quality-of-life reductions stemming from crime. They also include reductions in costs of incarceration.

I must confess, I have a weakness for these instrumentalist arguments when they support a policy I personally favor. It pleases me to see a cost-benefit analysis arguing that it is cheaper to fund early intervention educational programs than build prisons or put more cops on the street. I was less thrilled by the authors' assertion that lowering class sizes in K-12 education generates a "net negative return" and that, as far as the economy is concerned, "the cost of reducing class size would be better spent on giving children a savings account." I want smaller classes for my kids, dang it! But that's precisely the problem with adopting a Chicago-school orientation that declares economic efficiency to be the most important criterion for how public policy should be conducted. Sometimes a society may want to pay extra just because there's a consensus that something is the right thing to do. Do we have to create a property value for Sumatran rhinos before we decide we want to keep them around?

In this particular case, it's hard to quibble. The authors write:

Investing in disadvantaged young children is a rare public policy with no equity/efficiency tradeoff. It reduces the inequality associated with the accident of birth and at the same time raises the productivity of society at large.

I concede, framing it thus makes it an absolute no-brainer. But it should be anyway, even if there is an equity/efficiency tradeoff. Because life is full of such tradeoffs, and we can't escape making tough choices. Investing in young kids would be good for them, even if it didn't make society more productive. And that should be reason enough to do it.

Andrew Leonard

Andrew Leonard is a staff writer at Salon. On Twitter, @koxinga21.

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