Nobel Economist Sees Decline in Productivity Unless U.S. Invests in Preschool Programs

A Nobel prize-winning economist sees a future of declining wages and lower productivity unless America increases investments in its preschool-age children.

In a paper released Dec. 3, James Heckman, 2000 Nobel Laureate, and his colleague at the University of Chicago, Dimitriy Masterov, projected a potentially grim economic future - virtually the twilight of the American industrial and technological age - as the U.S. workforce loses the educational skills necessary to compete in the global market.

Their paper, "The Productivity Argument for Investing in Young Children," was presented at a conference for business leaders convened by the Committee for Economic Development (CED) with support from The Pew Charitable Trusts and PNC Financial Services Group.

"Over 20 percent of US workers are functionally illiterate and innumerate, a much higher percentage than in leading European countries," Heckman and Masterov wrote. "This is a major drag on U.S. competitiveness and a source of social problems," including the huge cost of crime. If current trends continue, they said, the annual rate of productivity growth attributable to education will decline by half or more in the next two decades.

"It is especially problematic that poor environments are more common in the minority populations on which America must depend for the growth in its future labor force. Until adverse family environments are improved, one cannot rely on growth in the skill of these groups to propel growth in workforce quality at the rate we have experienced in the past," the authors said.

On productivity grounds, they said, it makes sound business sense to invest in young children from disadvantaged environments. An accumulating body of evidence suggests that early childhood interventions are much more effective than waiting until children are in school or remedies that attempt to compensate for early neglect later in life, the authors said.

"Enriched preschool centers available to disadvantaged children on a voluntary basis coupled with home visitation programs have a strong track record of promoting achievement for disadvantaged children, improving labor market outcomes and reducing involvement with crime," Heckman and Masterov wrote.

The day-long session "Building the Economic Case for Investments in Preschool" for business leaders was devoted to exploring the economic benefits of high quality preschool programs. Since the 2002 release of Preschool for All: Investing in a Productive and Just Society, CED has been working to make universal access to quality free early childhood education a reality in the U.S. Since 2001, the Pew Charitable Trusts has invested over $33 million to advance high quality prekindergarten for all three-and-four-year-olds. Its efforts have supported public information and advocacy initiatives in 15 states. PNC Financial Services Group supports preschool education through its PNC Grow Up Great program, the $100 million, 10-year investment to improve school readiness through grants, volunteerism, advocacy and awareness. PNC's partners include Sesame Workshop, Family Communications Inc., PBS stations, Head Start, and others.

Heckman and Masterov identified a number of factors contributing to the potential decline in future productivity besides the high rate of illiteracy and innumeracy. These included relatively more American children - the future workforce - being born into adverse environments and the emergence of new technologies which have raised the demand for highly skilled workers.

If current trends continue, they wrote, the U.S. economy will add many fewer educated persons to the workforce in the next two decades than it did in the past two decades.

Although they can do some good, conventional school-based policies start too late to completely remedy early deficits of children born into adverse circumstances, Heckman and Masterov wrote. Ability gaps between disadvantaged and other children open up early, they said, and children who start ahead keep accelerating past their peers, widening the gap. Arguing for early interventions, they said: "Learning begets learning and skill begets skill. Early advantages accumulate, so do early disadvantages."

Reviewing the research on high-quality preschool programs, Heckman and Masterov said these programs can greatly help reduce (but not completely eliminate) the gap between disadvantaged and other children, while generating substantial savings to society and promoting higher economic growth.

The paper said participants in high quality preschool programs experienced increased achievement test scores and high school graduation, and decreased grade retention, time in special education, experience with crime and delinquency. The gains persist into adulthood, contradicting the perception that they fade within a very few years. Research showed that the programs benefited not only the participants but the participants' children and society at large.

One program subjected to extensive research, the Perry Preschool in Ypsilanti, Mich., had a return on investment of 16 percent to participants and society. Extending the program to all of the 4 million children under age 5 who are currently living under the poverty line would yield an estimated private net benefit to the participants of $102.4 billion and to the public of $409.2 billion, for a total benefit of over $511 billion, the paper said. "It is the large social benefits for the general public -- stemming from the savings to taxpayers, victims of crime and employers - that make the firmest case for [preschool] programs," Heckman and Masterov wrote. "Early interventions can add great value to the output of American society."

The full text of The Productivity Argument for Investing in Young Children, along with a summary, is available at CED's website.