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  • Review of Agricultural EconomicsVolume 29, Number 3Pages 446493

    The Productivity Argumentfor Investing in Young Children

    James J. Heckman and Dimitriy V. Masterov

    This article presents the case for investing more in young American childrenwho grow up in disadvantaged environments. Figure 1 graphs time series ofalternative measures of the percentage of children in disadvantaged families.The percentage of children born into, or living in, nontraditional families hasincreased greatly in the past thirty years.1,2 Approximately 25% of children arenow born into single parent homes. While the percentages of children living inpoverty and born into poor families have fallen recently, they are still high,especially among certain subgroups.

    Adverse environments place children at risk for social and economic failure.The accident of birth plays a powerful role in determining adult success.3 Manyhave commented on this phenomenon, and most analyses have cast the issue ofassisting children from disadvantaged families as a question of fairness or socialjustice.

    This article makes a different argument. We argue that, on productivitygrounds, it makes sense to invest in young children from disadvantagedenvironments. Substantial evidence shows that these children are more likely tocommit crime, have out-of-wedlock births, and drop out of school. Earlyinterventions that partially remediate the effects of adverse environments canreverse some of the harm of disadvantage and have a high economic return.They benefit not only the children themselves, but also their children, as well associety at large.

    Investing in disadvantaged young children is a rare public policy with noequity-efficiency tradeoff. It reduces the inequality associated with the accidentof birth and at the same time raises the productivity of society at large.

    James J. Heckman is the Henry B. Schultz Distinguished Service Professor in theDepartment of Economics, University of Chicago. Dimitriy V. Masterov is a graduate student in the Department of Economics,University of Michigan.

    This lecture was given as the T.W. Schultz Award Lecture at the Allied Social Sciences Associationannual meeting, Chicago, January 57, 2007.

    This article was not subject to the journals standard refereeing process.

    DOI:10.1111/j.1467-9353.2007.00359.x

  • Proceedings 447

    Figure 1. Percentage of all children born or living in adverse envi-ronments in each year, 19682000

    Living in a single-Parent Home Living in Poverty Born into Single-Parent Home Born into Poverty

    While a more rigorous analysis is necessary to obtain a better understandingof the effects of early intervention programs, their precise channels of influence,and their exact benefits and costs, the existing evidence is promising. Anaccumulating body of knowledge shows that early childhood interventions fordisadvantaged young children are more effective than interventions that comelater in life. Because of the dynamic nature of the skill formation process,remediating the effects of early disadvantages at later ages is often prohibitivelycostly (Carneiro, Cunha, and Heckman; Cunha and Heckman, 2006). Skill begetsskill; learning begets learning. Early disadvantage, if left untreated, leads toacademic and social difficulties in later years. Advantages accumulate; so dodisadvantages. A large body of evidence shows that postschool remediationprograms like public job training and general educational development (GED)certification cannot compensate for a childhood of neglect for most people.

    This evidence has dramatic consequences for the way we think about policytoward skill formation. Most current policies directed toward improving theskills of youth focus on schools as the locus of intervention. The No Child LeftBehind Act uses mandates and punishments to encourage schools to remediatethe educational deficits of disadvantaged children. School accountabilityschemes are used to motivate higher levels of achievement for children fromdisadvantaged environments.

    While these initiatives are well-intentioned, their premise is faulty. Schoolswork with what parents give them. The 1966 Coleman Report on inequality inschool achievement clearly documented that the major factor explaining thevariation in the academic performance of children across U.S. schools is thevariation in parental environmentsnot the variation in per pupil expenditure

  • 448 Review of Agricultural Economics

    across schools or pupilteacher ratios. Successful schools build on the efforts ofsuccessful families. Failed schools deal in large part with children fromdysfunctional families that do not provide the enriched home environmentsenjoyed by middle class and upper middle class children. Since failure in schoolis linked to so many social pathologies, each with substantial social andeconomic costs, a policy of equality of opportunity in access to homeenvironments (or their substitutes) is also one that promotes productivity inschools, the workplace, and society at large.

    Rigorous statistical analysis is not needed to show that parents and theirresources matter, although there is a large body of empirical evidence thatsupports this claim, as we document below. The issue that has stymied socialpolicy is how to compensate for adverse family environments in the early years.One approach has been to reduce the material deprivation suffered by the poorwith transfers from the state, as in Lyndon Johnsons War on Poverty. Anotherapproach has been to bolster the family with programs outside the home.Sometimes, children have been removed from the biological families, as in thecase of the American Indians in the early twentieth century. Policies that haveremoved children from homes have had catastrophic consequences.4

    An emerging body of evidence suggests that there is a better way to improvethe early years of disadvantaged children. Enriched preschool centers availableto disadvantaged children on a voluntary basis coupled with home visitationprograms have a strong track record of promoting achievement fordisadvantaged children. The economic return to these programs is high,especially when we consider alternative policies that target children fromdisadvantaged environments or the policies targeted to the young adults whoemerge from them. We review the evidence on these programs and suggest thatsome version of them be used to supplement the resources of disadvantagedfamilies with children.

    Our logic is simple and compelling. Education and human skill are majorfactors determining productivity, both in the workplace and in society. Thefamily is a major producer of the skills and motivation required for producingsuccessful students and workers. The most effective policy for improving theperformance of schools is supplementing the childrearing resources of thedisadvantaged families sending children to the schools. The family is a majordeterminant of child participation in crime and social deviance. A familysupplementation policy is a successful anticrime policy.

    Our emphasis on early childhood interventions does not deny the importanceof schools or firms in producing human skill. Indeed, if proven earlyintervention programs are adopted, schools will be more effective, firms willhave better workers to employ and train, and the prison population will decline.At lower cost to society, bolstered families will produce better educatedstudents, more trained workers, and better citizens.

    This article proceeds in the following way. We first discuss the problem of thesupply of skills to the American economy. Growth in both the quantity and thequality of the labor force traditionally has been a major source of U.S. outputgrowth. Given current trends, U.S. growth prospects are poor. Labor forcegrowth is slowing, especially that of young and skilled workers who are a

  • Proceedings 449

    source of vitality for the entire economy. The composition of the futureworkforce will shift toward workers from relatively more dysfunctional familieswith commensurately worse skills.

    We next discuss the problem of crime in America. Even though the crime ratehas fallen in recent years, the levels and costs of crime are still very high. Thedamage to victims and the resources spent on preventing crime and onincarcerating criminals are large. Early intervention programs targeted towarddisadvantaged families reduce participation in crime. On purely economicgrounds, the case for early childhood intervention is strong.

    After describing these two major social problems that impair the productivityof American society, we summarize trends in adverse child environments. Wesummarize a vast literature in social science that establishes that dysfunctionaland disadvantaged families are major producers of cognitive and behavioraldeficits that lead to adverse teenage and adult social and economic outcomes.The effects of disadvantage appear early and persist. Remediating thesedisadvantages at later ages is costly. Human abilities affect lifetime performanceand are shaped early in the life of the child. Early interventions promotecumulative improvements. Enriched interventions targeted toward children indisadvantaged environments are cost-effective remedies for reducing crime andthe factors that breed crime, and raising productivity in schools and in theworkplace.

    We then move on to summarize the findings of the literature on the economicsof child development that demonstrates the importance of both cognitive andnoncognitive abilities in shaping child educational and economic outcomes.Both types of abilities are major determinants of the economic return toeducation.

    Both cognitive and noncognitive abilities are shaped early in life and earlydifferences in abilities persist. Gaps in college attendance across socioeconomicgroups are largely shaped

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