Early Childhood Education and the Economy

Workforce Currents
Tamilore Toyin-Adelaja
January 8, 2019

Primary issue
A child's first few years provide a strong foundation for future development. Early childhood education programs can increase future labor force productivity, decrease societal costs, and ultimately lead to a stronger economy.

To address the issue, policymakers may want to consider:

  • Pay for success government contracts
  • Universal early childhood education.

Existing research
The time from birth to age five is critical in a child's development, as the brain is more receptive to learning languages, cognitive and motor skills, and socio-emotional competencies. Children build on the skills learned as a young child, and healthy development of these skills lays a foundation for future success in school and contributions to society. Research from Rob Grunewald in the recent Investing in America's Workforce book documents that positive early childhood experiences such as stable and nurturing relationships with caregivers, language-rich environments, and encouragement to explore through movement and senses help children thrive, and they are more likely to start kindergarten prepared to succeed. Research also reveals that adverse experiences and toxic stressors such as chronic neglect, exposure to violence, and verbal and physical abuse can hamper healthy development in children. These negative experiences can impair learning, memory, or the ability to self-regulate.

Children from economically disadvantaged families are more likely to be exposed to toxic stressors and endure adverse experiences, which can impede early skill development and cause them to enter kindergarten underprepared relative to their peers. A research study showed that, on average, by the age of three, children in families with college-educated parents have two times the vocabulary of children in low-income families.1 The achievement gap exists before children from advantaged and disadvantaged environments enter kindergarten, and is widened throughout their time in school.

Today, close to a quarter of children from infancy to age five live below the federal poverty level, higher than any other age group under 18, according to the U.S. Census Bureau. Early child development programs targeted at those who live in low- and moderate-income households can lead to a healthy and productive workforce and promote economic mobility. Research from the Minneapolis Fed shows that human capital investments in high-quality early childhood programs for children from disadvantaged environments can yield a high return. Some benefits include reduced societal costs (lower delinquency and crime) and increased school achievement, educational attainment, and earnings. Research from Jorge Luis García and coauthors shows high-quality birth-to-five programs for disadvantaged children produces an average 13 percent return on investment as well as a baseline benefit/cost ratio of 7.3. Over time, successful programs can pay for themselves as the benefits exceed the costs, according to the Center for High Impact Philanthropy report High Return on Investment.

History of early childhood education
The predecessor to early childhood education programs is the nursery school movement, dating back to the early 20th century. Nursery schools primarily served two- to four-year-olds in middle- and upper-middle-class families, and focused on children's physical, social, and emotional development. Low- and moderate-income families did not benefit from nursery schools until the Great Depression, because before then, child care services were funded by parent fees. In the early 1930s, emergency nursery schools were established for children between the ages of two and five whose families were on "home relief" (similar to Temporary Assistance for Needy Families),2 but within a year approximately 58,000 of the 10 million preschoolers with unemployed fathers were enrolled.3 The program was short-lived and by 1943, as the nation was recovering from the worst economic downturn in history, many of the centers had closed.

As a response to World War II, Congress passed the Lanham Act of 1940, which authorized federal grants and/or loans to public and private agencies for the maintenance and operation of child care facilities in war-affected areas. Once the war ended, federal funding diminished, and many child care centers closed. In 1954, Congress amended the tax code to include a child care tax deduction. It permitted low- and moderate-income families who earned up to $4,500 per year to deduct up to $600 for child care from their income taxes if the services "permitted the taxpayer to hold gainful employment."4

Shortly after the revision of the tax code, the Johnson administration initiated its war on poverty, and Head Start was enacted through the Economic Opportunity Act in 1965. Head Start is the first federally funded early child development program. It aimed to prevent children from disadvantaged backgrounds falling victim to developmental handicaps. Over half a century later, Head Start serves as the primary preschool program for children from low- and moderate-income families. The fiscal year 2016 budget included $9.2 billion for Head Start, and the program served approximately 800,000 preschoolers in 56,000 classrooms and 2,100 homes nationwide. Early Head Start is a branch of Head Start and provides care to low-income (defined as family income equal or below the federal poverty line) infants and toddlers under the age of three, and support services for pregnant women.

Today, Head Start programs are the largest federally funded early childhood development program, but the program is limited in the number of low-income children it reaches annually. During the 2014–15 school year, for example, the program enrolled 4.4 percent of children under three who live in poverty. Enrollment gaps vary significantly from state to state relative to the number of children in poverty. For example, in North Dakota, 97.3 percent of three-year-olds in poverty were enrolled in Head Start programs, but in Idaho just 15 percent of three-year-olds in poverty were enrolled.

Early childhood development programs
High-quality early childhood development programs benefit children from all backgrounds, but targeting children from disadvantaged environments will have the strongest impact, says Philadelphia Fed research. Studies have shown the positive impact of federal programs like Head Start; smaller-scale programs such as the Perry Preschool Program in Michigan and the Abecedarian Project in North Carolina have also shown success. These programs enable children to develop language, literacy, and prereading skills as well as soft skills such as responsibility, critical thinking, problem solving, conflict resolution, and self-motivation.

During the 1960s, the Perry Preschool Program in Ypsilanti, Michigan, offered daily classroom sessions for three- to four-year-olds on weekday mornings and home visits to each mother and child on weekday afternoons. According to Minneapolis Fed research, results showed that Perry School participants were less likely to be placed in special education programs and had significantly higher average achievement scores at age 14 compared with nonparticipants. Over 65 percent of program participants graduated from high school compared with 45 percent of nonparticipants. The estimated real internal rate of return (the interest rate received for an investment that consists of payments and revenue occurring at regular periods) for the participant and society totaled 16 percent; a majority of the benefits went to the general public, with society benefiting about 12 percent and participants 4 percent.

The Abecedarian Project in North Carolina provided children born into low-income families full-time, high-quality education from infancy though age five. Researchers followed the children into adulthood. Participants had higher math and reading scores on achievement tests at age 15 relative to nonparticipants, and by age 30, participants were more likely to hold a bachelor's degree, have a job, and delay parenthood.

While these two programs produced numerous benefits, impacts were limited to the 123 and 111 children who actually participated in the Perry Preschool and Abecedarian Projects, respectively. More broadly, these and other quality early childhood education are resource intensive and costly. For programs that do not provide public assistance, child care can be a huge expense for families. One study suggests that the average monthly cost of child care is $1,230 for an infant, $910 for a toddler, and $760 for a preschooler.

Policy implications
According to the U.S. Department of Education, some 42 percent of three-year-olds, 66 percent of four-year-olds, and 86 percent of five-year-olds were enrolled in preprimary programs in 2016. Preprimary includes both kindergarten and preschool programs. However, research from the National Center for Education Statistics shows a strong correlation between child enrollment in preschool programs and parents' highest level of education. In 2016, the percentage of three -to five-year-olds enrolled in preschool programs was highest among parents who had a graduate or professional degree (54 percent), and lowest for parents who had less than a high school credential (30 percent). The following initiatives offer ways to increase early childhood education programs' participation among children from low- and moderate-income families.

Pay for success
Pay for success (PFS) is a newer funding model developed to address numerous different social problems. It has been applied to reduce recidivism, incorporate mental health and maternal health initiatives, and expand access to high-quality early child development programs for children living in low-income communities. A pay for success contract model ties payments for services to measurable outcomes. Groups involved include a government jurisdiction, a service provider, an investor, an intermediary, and an evaluator. A sample pay for success model could be structured as such: a government jurisdiction defines a social issue and project objective; an intermediary works as a project manager to drive the design, negotiation, and financial structure of the project; and services are then provided to a target population. After the delivery of services, an independent evaluator measures the progress and social impact against the predetermined measureable outcomes, and if the outcomes are met, the government pays investor(s) the principal and return on investment; if outcomes are not met, no payment is made.

The Utah High Quality Preschool Program was launched in 2013 as the first-ever early childhood development PFS initiative. The program's goal was to increase school readiness and academic performance, and to reduce the need for special education and remedial services between kindergarten and 12th grade. The county's goal was to serve 3,500 preschool-aged children from low-income communities in Salt Lake City by 2018. If a student does not use special education or remedial services after the service delivery term each year, a PFS payment is generated.

Two years after the program's establishment, an independent evaluator conducted an initial review. During the 2013–14 school year, 595 low-income three-and four-year-olds attended the high-quality preschool. Results show that out of the 595 children, 110 of the four-year-olds identified as likely to be in special education in elementary school, based on a predictive standardized test. However, after attending the program, only one student out of the 110 used special education services in kindergarten. The total savings for the 595 children is $281,550. The model is in its final year of the five-year service delivery term. If the program continues to be a success, the state of Utah could save over $1 million on special education and remedial services as well as make a positive social impact on the community. The Utah High Quality Preschool Program is scalable and replicable. It offers a framework for other states, counties, and cities to work with the private sector to expand access to high-quality early childhood education programs in low-income communities.

Universal early childhood education
Universal early childhood education—specifically, pre-K programs—can reduce early childhood education access and achievement gaps in low-income communities. To be eligible for a Head Start program, a child's family income must be below or at the federal poverty line. (There are exceptions to the requirement, but the majority of children enrolled fall below the federal poverty line.) This limits the number of children who are eligible to enroll, as many families are low-income and/or cost-burdened, even if their household income is above the federal poverty line. Universal pre-K programs are voluntary, and every child who meets the minimum age requirement is eligible to enroll regardless of family income.

In this way, implementing universal pre-K programs among all U.S. states can supplement targeted programs that enroll children who only possess one or more risk factors. Since 1993, Oklahoma school districts offer four-year-old pre-K child development programs, primarily funded by state and local dollars. The programs enroll over 75 percent of four-year-olds in the state and when combined with Head Start and special education programs, 90 percent of Oklahoma children are served via public programs. This program helps to increase accessibility to early child development programs.

Evidence suggests that high-quality universal pre-K programs could close the achievement gap between low-and higher-income children. Low-income children often enter elementary school less prepared than their higher-income peers. Children from low-income households are typically 11.2 months behind their higher-income peers in math, and universal pre-K programs could reduce the gap by an estimated four months. Likewise, the reading gap could be reduced from 13 to 7.7 months. Universal pre-K programs are offered in few states, but they have the potential to reduce achievement gaps in kindergarten and improve the chance to achieve success for all students. Although research makes clear the importance of early childhood education, children from low-income families are less likely to have access to high-quality programs. At the federal level, billions of dollars are spent annually to support children and early childhood education, but more work needs to be done. Local and state governments could implement programs and policies to increase opportunities for young children that benefit both families and society.

By Tamilore Toyin-Adelaja, CED intern

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1 Hart, Betty, and Todd R. Risley (1995). Meaningful Differences in the Everyday Experience of Young American Children. Baltimore, MD: Brookes Publishing.

2 Cohen, Abby J. (1996). "A Brief History of Federal Financing for Child Care in the United States." Future of Children Volume 6: 26-40.

3 Cahan, Emily (1989). Past Caring: A History of U.S. Preschool Care and Education for the Poor, 1820–1965. New York: National Center for Children in Poverty.

4 Michel, Sonya (2011). "The History of Child Care in the U.S." Virginia Commonwealth University, Social Welfare History Project.