Economics of Early Childhood Policy

The Economics of Early Childhood Policy, What the Dismal Science Has to Say About Investing in Children is a study by Rebecca Kilburn and Lynn Karoly for the Rand Corporation in which they apply human capital theory to child development. It came out last year, and I started it then but got distracted and then recently picked it up again.

Human Capital theory looks at things one can do to make people worth more, to increase their human capital. Adam Smith invented the concept. In its modern conception, it is used to figure out how best to increase the value of a worker to a company.

An important aspect of human capital is that it is subject to the same magical law of compound interest that money is. The earlier you learn something, the greater lifetime effect it has on your human capital. Think of it as scaffolding.

Kilburn and Karoly apply this to ECE. It is not surprising that the net benefits (and certainly the benefits per kid) are greatest if you concentrate your public child care money on the neediest kids and start very early. With each rung up the socio-economic ladder, the benefit per kid gets lower; and with each year later that you start, the long-term benefits to the person and to the economy are reduced.

So the most efficient way to spend our state ECE money would be to expand state preschool and center-based care to more eligible kids and start when they are infants.