On October 8th, the U.S. Bureau of Labor Statistics released new data on the U.S. labor market during the month of August. Below are five graphs compiled by Equitable Growth staff highlighting important trends in the data.
The employment rate for prime-age workers remained steady in September at 78.0 percent, still well below pre-pandemic levels.
The unemployment rate declined to 4.8 percent, with Black workers (7.9 percent) and Latinx workers (6.3 percent) still experiencing markedly higher unemployment rates compared with White workers (4.2 percent) and Asian workers (4.2 percent).
Total employment increased by only 194,000 in September. Employment in educational services declined, and employment in leisure and hospitality, after recent strong gains, increased more slowly.
The employment rate for women was steady at 53.4 percent in September, and the rate for men increased from 63.1 in August to 64.4 in September.
In September, the share of workers unemployed due to permanent job losses was 38.5, and another 14.7 percent of workers are unemployed as a result of job losses due to temporary layoff. About 10.3 percent are leaving jobs, 30.0 percent re-entering the labor force, and 6.4 percent are new entrants.
U.S. Gross Domestic Product is one of the most-cited economic statistics and is regularly regarded as shorthand for measuring the economic outcomes of the entire nation. Although it once represented cutting-edge economic analysis, U.S. GDP is completely inadequate for understanding our modern economy or the well-being of U.S. workers and their families. It cannot tell economists or policymakers anything about the informal work sector, inequality in the economy, sustainability, and myriad other issues that are essential for policymaking in the 21st century.
The problems with the GDP measure are emblematic of the work by the Washington Center for Equitable Growth to improve economic measurements. We know from research that changes in GDP have a huge impact on the tenor of economic narratives in the United States. But we also know that GDP is increasingly disconnected from the experience of most U.S. workers and their families, most of whom generally see increases in their own incomes that are well below headline GDP figures.
Fortunately, U.S. policymakers increasingly want to know not simply whether the economy is growing and by how much, but also where and for whom the economy is growing. They want to know what geographic regions are being left behind, whether persistent systemic race and gender divides are narrowing, how the economy is performing for old and young alike, and much more. Data disaggregation is the next frontier to guide responsive policymaking.
Our federal statistical agencies are world leaders and are poised to help answer these questions, but we must identify priorities and fund the necessary data infrastructure. By addressing racial and ethnic equity in the collection and reporting of data, by reporting on economic inequality, and by modernizing data infrastructure to make these goals possible, federal statisticians can give policymakers the tools they need to craft policy for equitable growth and give the public the tools they need to hold their elected representatives accountable to creating an economy that works for all of us.
U.S. GDP growth is no longer sufficient as a marker of economic progress. A first step is to report on growth along the income distribution, so that policymakers can see how the economy is performing for working- and middle-class families. This brief shows that growth has increasingly been tilted toward very high-income Americans, leading directly to decreased economic mobility for those in the middle and at the bottom.
This comprehensive report outlines a plan for replacing U.S. GDP with measures of growth that will better represent most U.S. workers and their families.
This Equitable Growth working paper looks at decades of media economic coverage and finds that the tone of economic news does not correspond to the fortunes of the bottom 99 percent of income earners. This is directly attributable to the outsize importance of GDP growth as a metric for economic success, even though it no longer accurately represents progress for those outside the very top of the income distribution.
In this Equitable Growth issue brief, Austin Clemens and Michael Garvey look at two major surveys—the Current Population Survey and the Survey of Consumer Finances—to show that these surveys cannot give accurate estimates of subpopulations of marginalized groups. This prevents researchers from, for example, being able to accurately estimate homeownership rates among generational cohorts of African Americans. Oversampling these populations could make these surveys more useful for policymakers who want to understand racial divides in employment, income, and wealth.
Analyses of congressional legislation prepared by the nonpartisan Congressional Budget Office do not give policymakers enough information to assess the effects of legislation on different populations. The CBO Fiscal Analysis by Income and Race, or FAIR Scoring Act would require distributional analyses, including by race, that would help policymakers better craft legislation to address income and racial inequality and thus spur strong, stable, and broad-based growth.
This “Executive Action Agenda” factsheet highlights the two ways the federal statistical agencies can contribute to advancing economic research into racial economic disparities, which ultimately can help ensure more equitable economic treatment.
This column from associate professor Randall Akee at the University of California, Los Angeles highlights some of the many benefits of having more diverse representation in the economics profession and suggests some ways our data infrastructure could be improved to provide more data on marginalized communities.
Marie Mora, provost at the University of Missouri-St. Louis, has been a leader in academic economics in trying to increase diversity and doing research that provides insight into economic outcomes for racial groups that go beyond lumping all Hispanic and Latinx Americans together. She writes here about why these are important projects to pursue.
Austin Clemens, Director of Economic Measurement Policy at the Washington Center for Equitable Growth
David Johnson, Director of the Panel Study of Income Dynamics at the University of Michigan and Member of the Research Advisory Board at the Washington Center for Equitable Growth
Gabriel Zucman, Associate Professor of economics at the University of California, Berkeley
Emmanuel Saez, Professor of economics and Director of the Center for Equitable Growth at the University of California, Berkeley, and former member of Equitable Growth’s Steering Committee
Racial disaggregation
Michael Garvey, Macroeconomic Policy Analyst at the Washington Center for Equitable Growth
Randall Akee, Associate Professor at the University of California, Los Angeles
1. A good society will need an extremely robust income support program. But the problem has always been that enough voters in the United States would rather see 10 people who would be appropriate users not get social insurance than to see 1 person among the “undeserving” actually receive benefits. Curiously, however, this set of judgments is never—or rarely—applied to systems that reward the undeserving rich. Their comeuppance is limited to entertainment fantasies. Read Liz Hipple and Alix Gould-Werth, “Weak income support infrastructure harms U.S. Workers and their families & constrains economic growth,” in which they write: “Economists Jesse Rothstein … and Sandra Black … argue it is inefficient to have families self-insure against unpredictable risks they cannot reasonably calculate. … Black and Rothstein explain, ‘The federal government can provide social insurance protections at a much lower overall cost, and … enable families to stretch their market earnings further.’ … Most people will need income support at some point in their lives. … In any given month, nearly 1 in 5 people benefit from SNAP, Supplemental Security Income, TANF, public or subsidized housing, the Women, Infants, and Children, or WIC, program, or the Child Care and Development Fund.”
2. I wonder if the government can be flexible enough to handle this problem, and I certainly doubt the ability of our current legal system to handle it. So I would rather focus on mechanisms to give more workers more bargaining power, and more channels and intermediary institutions through which they can bargain and to bargain on their behalf. Read Kathryn Zickuhr, “Workplace surveillance is becoming the new normal for U.S. workers,” in which she writes: Invasive and exploitative workplace surveillance in the United States is now growing largely unchecked due to weak worker power and a lack of legal protections or regulatory restrictions. … Workplace surveillance … enables illegal discrimination, hampers worker organizing … [and] is part of a cycle of fractured work arrangements through which firms de-skill work and misclassify employees. … The dangers posed by workplace surveillance fall most heavily on the most vulnerable.”
3. From two years ago. Read Austin Clemens, “Eight graphs that tell the story of U.S. economic inequality,” in which he writes: “Rising economic inequality over the past 40 years has redrawn the U.S. wealth and income landscape, shifting many of the gains of prosperity into the hands of a smaller and smaller group of people and marginalizing members of vulnerable communities. This transformation is in turn reducing income mobility and opening gulfs in educational achievement and health outcomes between different levels of income. The eight graphs in the three sections below visually illustrate these findings. … The first graphic tracks the share of all earned income accrued by the top 1 percent of earners, along with the next 9 percent, the upper 40 percent (from the 50th percentile to the 90th) and the bottom 50 percent. The share of income controlled by the top 10 percent bottomed out in the 1970s but has reached new highs—the top 10 percent of all income earners now control around 38 percent of national income.”
Worthy reads not from Equitable Growth:
1. I confess that the correlation between political polarization and COVID denialism at the state level makes me significantly more depressed than I believe Bradley L. Hardy and Trevon D. Logan are. Read their “The Way Back: Assessing Economic Recovery Among Black Americans During COVID–19,” in which they write: “Varying state and local public health and economic policy choices could present clear challenges to the speed and persistence of a broader national economic recovery. … Recent federal policies will mandate that employers require employees to either be vaccinated or submit to weekly testing. Economic policy evidence and theory show that businesses value and benefit from a consistent application of regulatory policies. Federal policy is converging with a private sector that is increasingly adopting a more consistent, aggressive stance on mask-wearing and vaccination policy for employees as a mechanism to avoid another large-scale shutdown of economic activity. Black Americans have experienced an especially large, harmful public health and economic shock from COVID–19. The consequences from historically high job loss and COVID–19 mortality and morbidity, along with K–12 learning loss, will likely transmit a substantial intra- and intergenerational consequence onto Black families and their communities. These communities will benefit from sustained public health, economic policy, and educational interventions to moderate the effects of COVID–19.”
2. Heather Boushey is doing a good job from her perch in the Executive Office Building. Read her “I’m One of Biden’s Advisers. Here’s How I Think About His Economic Agenda,” in which she writes: “In the early 1980s … my father was “pink slipped” from his machinist job building 747s at Boeing, an event that upended our family finances. … We were lucky; the recession was relatively short, and between my mom’s paycheck and my dad’s benefits, we got by until the orders for planes resumed. … I recall being shocked by how much power Boeing had over our lives. When my dad was laid off, the economic security my parents had long worked for disappeared overnight. … It got me thinking about … how can … things like unions and democratic governments that respond to crises … [and] cushion individual families against the whims of the marketplace? … Biden has set out to mend broken supply chains as aggressively as he tackled other challenges with the American Rescue Plan. But getting back to where we were is not enough. We need to emerge stronger and more resilient. And that’s why we need a more robust government. … Congress has a choice to make. Does it want to grow our economy by investing in the middle class and the public sector, and fundamentally recalibrating the relationship between government and the people it represents, or continue giving billions in tax handouts to the wealthiest Americans and multinational corporations? It’s time to build back better.”
3. Remember, the collapse of Lehman Brothers in 2008 should not have been a Lehman moment for the U.S. economy. There is no good reason that Evergrande today should be for China. Whether what I now tend to think of as the safe-asset-shortage problem is about to come to China big time, and trigger an example of the middle-income trap—that is a very interesting idea that I think I need to spend significant amounts of time trying to assess. Read Paul Krugman, “Wonking Out: This Might Be China’s ‘Babaru’ Moment,” in which he writes: “Suppose that the conventional wisdom is right and that Evergrande isn’t another Lehman moment. That still won’t mean that things are OK. For it seems quite possible, at least to me, that China is having a “babaru” moment … the Japanese bubble economy—or as the Japanese themselves called it, the “babaru economy”—of the late 1980s, when prices of many assets, above all commercial real estate, went completely crazy. At one point it was widely claimed that the land under the Imperial Palace was worth more than the whole state of California. Then everything crashed. … The bursting of the Japanese bubble didn’t lead to a financial meltdown. But it was followed by a prolonged period of economic weakness. At first many observers attributed that weakness to a hangover from previous financial excess: Japanese corporations had too much debt, they argued, or Japanese banks had too many nonperforming loans. But the weakness went on and on, and indeed in some ways continues to this day. … Japan has been able to maintain more or less full employment only through constant economic stimulus: ultralow interest rates and persistent budget deficits that have pushed the national debt above 200 percent of GDP. True, that debt hasn’t posed any problems so far, and the Japanese arguably deserve praise for managing a difficult economic situation with relatively little mass suffering. … Here’s the thing: While China is vastly different from Japan in many ways, China’s macroeconomic situation bears a striking resemblance to that of Japan around the time the Japanese bubble burst.”
The U.S. economy and society are rife with racial and ethnic inequalities, from wealth and income divides to disparities in health and well-being, education, and employment outcomes. These racial and ethnic inequalities are a result of centuries of systemic racism and discrimination, which prevents people of color from moving to better-paying work, accumulating wealth, and otherwise developing and fully deploying their human capital in the U.S. economy and labor market.
These disparities have only gotten wider during the coronavirus recession in 2020 and amid the continuing coronavirus pandemic. Economists and social science researchers have long debated and studied these trends, yet data collection and reporting have long faced obstacles in best reflecting the diversity of the U.S. economy. These challenges not only limit the scope of data-driven research but also obscure its findings and, in turn, impede efficient and effective policymaking aimed at promoting strong, stable, and broadly shared economic growth.
This was the general theme of an Equitable Growth and Groundwork Collaborative virtual event this past summer, “Data Infrastructure for the 21st Century: A Focus on Racial Equity,” in which I spoke on a panel of fellow academic experts on the importance of racial equity in federal data collection. My co-panelists and I—all scholars of color who study underrepresented populations and subpopulations in the United States—discussed actionable proposals to increase the quality and utility of data gathering and analysis.
One such technique is oversampling, a method in which particular groups are surveyed at higher rates than they actually appear in the population. Oversampling can facilitate data disaggregation for these underrepresented groups in the United States and enhance the accuracy and generalizability of research findings.
Aggregate data points and statistics, such as Gross Domestic Product or the unemployment rate, are inadequate representations of the current U.S. economic situation because they lump all populations together and calculate an average. In reality, various groups and subgroups of the U.S. population fare differently in the economy and across society, rendering averages inaccurate portrayals of most people’s lived experiences.
To properly measure how all U.S. workers and their families are faring in the labor market, or how policies are impacting their lives, disaggregating data is therefore essential.
As I mentioned in my opening remarks at the recent data infrastructure event, I do a lot of research on small groups in the U.S. population, such as American Indians, Alaska Natives, Native Hawaiians, and Pacific Islanders. This work is facilitated with the use of administrative data that contain the entire populations of AIAN or NHPI groups and thus make it possible to conduct statistical analysis and data disaggregation.
But it’s not only studies of these smaller demographic groups that benefit from better data disaggregation. Larger demographic groups such as Hispanic Americans and Asian Americans that tend to be clumped together in surveys have an array of subgroups that face diverse challenges and experience the U.S. workforce and economy differently.
When researchers use broad categories to analyze outcomes for these groups, we essentially just get the average effect and lose a lot of nuance that is incredibly valuable for our research and findings, as well as policy implications. (See the video for more details.)
There’s another side of this question of missing the nuance in research findings that comes from a lack of diversity among researchers doing the research, framing the questions, and surveying the population. It’s no secret that economics as a profession and a field in general has a diversity problem. Women, people of color, and especially women of color, face incredibly high barriers to entry and success, starting at the undergraduate and graduate level. For instance, in the United States, between 2015 and 2019, no economics doctorates were awarded to Native American women out of the 1,200 doctorates awarded in that time period.
This diversity problem extends beyond who studies economics or teaches it to the next generation. One of the many pitfalls of not having diversity among researchers is that certain areas of research, outcomes, and evaluation tend to be forgotten—many of which could inform future research and policy decisions.
One example I discussed at the virtual event this past summer is the universal basic income program that many American Indian tribes have provided for the past 25 years. This means there are extensive data that can shed light on the effects of a universal basic income on labor force participation or poverty rates, among other areas—yet no one is really talking about them or paying attention to them, despite the knowledge that policymakers could gain from learning about these communities’ long-run experience and the effect on their communities.
This is just one example. But there are probably many others that academics and policymakers alike don’t realize they are missing because of a lack of diversity among economists. These areas of unexplored research opportunities are often only known to the communities in which they are being put into practice, which means that without researchers from those communities, they will probably remain unknown.
This profound lack of diversity in economics not only limits the scope of academic research and policy evaluation but also curbs the effectiveness and creativity of policymaking itself, as well as the ability of federal, state, and local governments to set up effective economic and social programs that create better economic opportunities and build better communities.
Policymakers today have a unique opportunity to pass life-changing and essential legislation that will enable millions of Americans to achieve better economic and social outcomes in unprecedented fashion. But in order to fully comprehend the impact of these programs, we need disaggregated data to shed light on how various U.S. communities are affected by them, and we need economists from all backgrounds to analyze and evaluate those data. Not only will future research benefit from it, but so will the communities studied by academics and served by policymakers.
—Randy Akee is an associate professor in the Department of Public Policy and American Indian Studies at the University of California, Los Angeles.
1. Back in the real old days, large family sizes meant that the economies of scale in child care were captured for the most part within the family, and certainly within the extended family. In our time of nuclear families and low fertility a great deal of this essential work and life is done at a much greater societal resource load per child than a better organized society would do. Read Sam Abbott, “The child care economy,” in which he writes: “Insufficient child care options can prevent parents who wish to work from doing so, with mothers often bearing the brunt of this challenge. … High-quality early care and education provides critical socialization and learning opportunities when the brain is developing rapidly. … Adequate funding is necessary for human capital development. … Supporting child care workers is crucial for promoting quality care and human capital development. … Investing in the nation’s children is one of the safest bets policymakers can make. Research on early care and education programs finds that $1 in spending generates $8.60 in economic activity.”
Worthy reads not from Equitable Growth:
1. There is a very large fiscal contraction coming down the tracks, targeted at the non-rich in the United States. It is not at all clear that macroeconomic forecasters optimistic about production and employment are taking full and proper account of it. Read Asha Banerjee and Ben Zipperer, “All pain and no gain: Unemployment benefit cuts will lower annual incomes by $144.3 billion and consumer spending by $79.2 billion,” in which they write: “Congress and the Biden-Harris White House have let expanded unemployment benefits expire in the middle of the ongoing COVID–19 pandemic, even while employment is still well below pre-pandemic levels. As a result, annual incomes across the United States will fall by $144.3 billion and annualized consumer spending will drop by $79.2 billion, according to the best available evidence on the effects of recent unemployment benefit cuts. … About half of states prematurely terminated these programs between June and late July 2021, and then, by letting the federal law expire in September, Congress and the White House cut off pandemic UI entirely. In total, more than 10 million workers lost all of their unemployment benefits because of either the state-level program terminations or the September program expiration.”
2. Behind the belief that Black people just happen to make bad choices is blame: either of the culture, or (more often) of the genes—although that is mostly whispered in polite society. Until we can convince the overwhelming majority of Americans that people are, at bottom, the same, and that groups where “bad choices” are more common arise from structural causes, equitable growth will be a nearly impossible task. Read Alberto Alesina, Matteo F. Ferroni, and Stefanie Stantcheva, “Perceptions of Racial Gaps, Their Causes, and Ways to Reduce Them,” in which they write: “Using new large-scale survey and experimental data, we investigate how respondents perceive racial inequities between Black and white Americans, what they believe causes them, and what interventions, if any, they think should be implemented to reduce them. We intentionally over- sample Black respondents, cover many cities in the United States, and survey both adults and very young people aged 13 to 17. In the experimental parts, we consider the causal impact of information on racial inequities (such as the evolution of the Black-white earnings gap or the differences in mobility for Black and white children) and explanations for these inequities (i.e., the deep-seated roots and long-lasting consequences of systemic racism) on respondents’ views. Although there is heterogeneity in how respondents perceive the magnitude of current racial gaps in economic conditions and opportunities, the biggest discrepancies are in how they explain them.”
Economics as a field is beleaguered by a diversity problem. This is not a new phenomenon, but diversity-related issues are now more widely discussed within many organizations and professional disciplines, including among economists, in light of how COVID-19 and the unraveling of the U.S. economy exposed sustained racial and social inequities alongside ongoing systemic discrimination and violence against Black Americans and other Americans of color.
The lack of representation in economics results in pervasive barriers and blind spots along the economics pipeline and pathways, from who becomes an economist and how economics is taught to how data are collected and the ways in which researchers and policymakers analyze and use those data. As a Latina economist who has long worked to diversify the profession—particularly with respect to race, ethnicity, and gender—I know all too well the obstacles that my peers face in the field, as well as the benefits of the diversity in lived experiences, viewpoints, and backgrounds that we bring to the table.
These challenges and their effects on the economics profession were largely what pushed my colleagues and me, back in 2002, to found the American Society of Hispanic Economists, a professional association of economists concerned by the underrepresentation of Hispanic voices in economics. We seek to promote research on economic and policy issues affecting Hispanic communities and the United States as a whole, and to encourage more Hispanic Americans to enter the economics profession.
I recently spoke about my experience founding ASHE and my desire to promote more diversity in economics at an Equitable Growth virtual event co-hosted by the Groundwork Collaborative earlier this year. I explained the importance of diversity of perspectives in academia to shape what we study and how we go about it. I also highlighted ASHE’s work—along with the American Economic Association’s mentoring program, which is funded by the National Science Foundation, for traditionally underrepresented minorities—in mentoring early-career economists and graduate students.
These young scholars tend to be more at-risk of leaving the economics profession—or even not entering it at all or completing their degrees—due to harassment, discrimination, feelings of isolation, or unfair treatment arising from lack of diversity. (See video for details.)
The event centered on the importance of racial equity in federal data collection and how disaggregating data can illuminate certain racial and ethnic inequalities that permeate our economy and society. Better understanding the lived experiences of various demographic groups expands our understanding of how the economy is working for all Americans in a way that is often obscured by more traditional macroeconomic aggregate numbers, such as Gross Domestic Product. And disaggregated data can guide policymakers as they work to address racial disparities and the systemic racism from which they stem.
The push to disaggregate data along race and ethnicity lines is one I have long worked on and am passionate about, particularly as it relates to specific subgroups of the Hispanic American community. The experiences of Mexican Americans or Puerto Ricans differ from those of Cuban Americans or Dominicans, for instance, but those distinctions are obscured by aggregate statistics that lump all Hispanics together.
There also are differences within subgroups. Mexican Americans, for example, include immigrants from Mexico but also U.S. natives whose families have lived in areas that predate the United States. And Puerto Ricans growing up in Puerto Rico are U.S. citizens by birthright, but their lived experiences are not necessarily the same as those growing up on the U.S. mainland.
As I mentioned at the Equitable Growth-Groundwork Collaborative event, “When we think about the Hispanic or Latino population, it’s actually quite heterogeneous. And sometimes … we just hear about the ‘Hispanic population’ or what’s happening with Hispanic employment or unemployment, without understanding that there are key differences within the Hispanic population.” (See video for details.)
So, what can academics and policymakers do about it?
For one, oversampling would improve the ability to analyze subgroups of the U.S. population. Oversampling is a survey tool that targets specific groups at a higher rate than they appear in the overall population to address the frequent underrepresentation of these groups in surveys. Larger samples would help researchers uncover different economic and social experiences of these communities and facilitate disaggregation among subgroups that are not well-represented by the aggregate data.
For instance, I often use the U.S. Census Bureau’s American Community Survey in my research because it is a large dataset that allows for some disaggregation of Hispanic groups. But even the ACS is limited in its ability to break down certain smaller subpopulations, and this is where expanding sample sizes could be useful.
In addition to oversampling, it is essential to complement survey and administrative data with on-the-ground data so that policymakers can develop and implement more effective policies to address specific needs of target groups. When I served on the board of directors of the Federal Reserve Bank of Dallas’ San Antonio branch, I quickly understood the value of having researchers and other stakeholders in the community learn firsthand about local conditions and gather so-called economic intelligence from the areas we, as board members, represented.
Indeed, the conversations we had in our respective communities shaped our understanding of the lived experiences of local residents and allowed us to examine, almost in real time, the potential effects of policies under consideration by the Fed. By sharing our insights with the Fed, we were able to help it formulate and implement more effective monetary policy.
In other words, collecting more and better data allows for more and better data disaggregation and analysis, which, in turn, allows for better policy decisions and outcomes. Knowing how to collect these data begins with empowering economists from diverse backgrounds to shape how we study different groups of people while providing unique perspectives from our lived experiences, making sure all voices are heard and respected.
As I and my fellow panelists reiterated, while disaggregating the data we collect and having “boots on the ground” requires effort and resources, not taking these steps is doing a disservice to ourselves, our research, the communities we study, and to local and national economic prosperity.
—Marie T. Mora is associate vice chancellor for strategic initiatives and professor at the University of Missouri-St. Louis.
This is a post we publish each Friday with links to articles that touch on economic inequality and growth. The first section is a round-up of what Equitable Growth published this week and the second is relevant and interesting articles we’re highlighting from elsewhere. We won’t be the first to share these articles, but we hope by taking a look back at the whole week, we can put them in context.
Equitable Growth round-up
Earlier this week, Equitable Growth hosted its biennial policy conference, virtually gathering policymakers, academics, and advocacy partners for sessions discussing pressing economic challenges. The event, “Equitable Growth 2021: Evidence for a Stronger Economic Future,” included opening remarks from Equitable Growth’s new President and CEO Michelle Holder, in which she outlined her research background and how it fits with the organization’s mission. She also detailed Equitable Growth’s long history of facilitating evidence-backed policymaking by connecting academia and the policymaking community, before explaining why the current moment in Washington offers opportunities to make real structural change in the U.S. economy and society. Participants and attendees of the conference also heard from:
U.S. Secretary of Labor Marty Walsh, who discussed the importance of an equitable recovery from the coronavirus pandemic.
U.S. Rep. Hakeem Jeffries (D-NY), who spoke to Equitable Growth’s Director of Labor Market Policy and interim chief economics Kate Bahn about building a just and competitive economy for all.
New York Attorney General Letitia James, who detailed the importance of curbing Big Tech’s market power.
Michigan State University economist and Equitable Growth Steering Committee member Lisa Cook, who chatted with Equitable Growth’s Holder about the role of academic research in evidence-based policymaking.
University of California, San Diego assistant finance professor Carlos Fernando Avenancio-León, whose conversation with Marketplace’s Kimberly Adams touched on topics that he recently discussed with Equitable Growth’s Director of Government and External Relations David Mitchell in our In Conversation series. Adams and Avenancio-León dove into Avenancio-León’s research on how the Voting Rights Act of 1965 impacted the economic well-being of Black Americans and the link between political polarization and rising economic inequality, the structural racism embedded in local property taxation systems and property appraisals, and policy solutions to address these issues.
A new Equitable Growth issue brief presents a cost-benefit analysis of the proposed nationwide public preschool program included in the American Families Plan. Robert Lynch calculates the 10-year costs and benefits of such a program, and then extends the analysis to a 35-year period to fully grasp the long-term implications. He finds that a high-quality, publicly funded preschool education program will generate growing annual benefits that surpass the annual costs of the program within 8 years. These benefits, he writes, come in the form of government budget benefits, increased wages and earnings of workers (and thus higher tax revenues), and improved outcomes for children and their parents in terms of better health, lower crime rates, and fewer instances of child abuse and neglect. This investment will not only have long-term benefits but also an immediate stimulus effect on the U.S. economy, with estimated growth in Gross Domestic Product of $28.6 billion and more than 210,000 new jobs in just the first 2 years. Though this program would have significant upfront costs, Lynch explains, the benefits more than make up for the costs.
Equitable Growth is excited to welcome two new Dissertation Scholars for the 2021–22 academic year. Lauren Russell of Harvard University and Sheridan Fuller of Northwestern University. Russell and Fuller receive a stipend and professional support from Equitable Growth and our network throughout the year as they work on their research and learn about the policymaking process. Find out more about their current areas of study and goals for the year by reading our blog post announcing their participation.
Links from around the web
Employment in the child care industry is still down even as demand for child care rises. The Washington Post’s Heather Long explains that child care workers are leaving their jobs for better-paying, safer positions in different industries. This leaves many child care centers without sufficient staff numbers, meaning many children and families are being turned away from the only care options nearby. Long cautions that this trend is a “red flag” for the economy, as working parents, mostly women, are unable to return to work until the child care crisis is resolved. Long reports that more than one-third of child care providers are considering leaving their jobs or closing their businesses in the next year, with potentially disastrous consequences for the broader economy. This is part of the reason why President Joe Biden has asked Congress to increase public investments in the care economy.
There’s something wrong with the hiring system in the U.S. labor market, write Recode’s Rani Molla and Emily Stewart. Headlines tout job openings across industries with employers desperate to fill them, and yet unemployed workers are not getting hired. In fact, U.S. Bureau of Labor Statistics data reveal 8.4 million unemployed workers and 10.9 million job openings. There are many potential explanations for this mismatch, the authors write. Many workers are only finding jobs that pay too little or offer unpredictable schedules, or just simply aren’t a match for their background. Others are still worried about the thread of COVID-19 or have other health and well-being concerns. Yet another factor is that the set of desirable skills employers are looking for is rapidly changing as technology and software reshapes industries and positions within them. But, Molla and Stewart explain, hiring software and algorithms are also playing a role: They weed out candidates based on arbitrary factors or keywords and ignore candidates’ potential to be a good fit such that “the endless quest to make hiring efficient has rendered in inefficient.”
Antitrust laws are primarily used to combat monopoly power in the United States, but perhaps it’s time to start using them to address monopsony power as well. In a New York Times guest essay, Eric Posner makes the case for raising wages for workers by using antitrust laws to boost wages and lower inequality. Posner details how monopsony relates to monopoly, especially with regard to the impacts on consumers and workers, before diving into research on monopsonistic labor markets and how to use antitrust law against these employers. He explains the connection between labor market concentration and anticompetitive behavior among firms, as well as the results for employment rates and earnings. And he credits academic research with the increase in antitrust violation cases brought against employers in the past year, with hopefully more to come as the Biden administration seeks to use antitrust to help workers.
Our recent policy conference, “Equitable Growth 2021: Evidence for a Stronger Economic Future,” brought together policymakers, academics, advocates, and thought leaders to discuss the best evidence-based ideas for building a stronger economic future for all Americans. The key themes of the 2-day conference included outlining a vision for sustained public investment in structures and institutions to spur equitable economic growth, with a focus on Black and Indigenous workers and workers of color and how to recover from the pandemic while addressing the ongoing racial, climate, and care crises our nation faces. Below is Equitable Growth President and CEO Michelle Holder’s opening address to the conference.
Since its inception in 2013, Equitable Growth’s mission has been to advance evidence-backed ideas and policies that promote strong, stable, and broadly shared growth. I’ve admired Equitable Growth from afar for so long, and I’m now thrilled to take the helm as its leader to help further its mission. After all, Equitable Growth’s mission hits home for me.
As a labor economist, my research examines why some groups in the U.S. workforce hold a more favorable status, while other groups hold a less favorable one. I also look at the consequences of this stratification and how it contributes to marginalization and disempowerment—and ultimately less prosperity and slower growth.
My research is informed by my lived experience, which lies at the nexus of characteristics associated with marginalization and cuts right to the heart of the issues affecting the economy today. The economy is not an abstract system that we have no control over. It is made up of people. People like me: a second-generation immigrant, first-generation college graduate, and working mom.
The economy is also a direct result of choices that policymakers make. A new day has dawned in government, and with it comes the possibility for long-overdue structural changes to the economy. The coronavirus pandemic continues to expose deep fragilities in our economy—especially racial and gender inequities—that economic policymakers have a once-in-a-generation opportunity to address.
Broadly shared economic growth is achievable, but a stronger, more equitable future requires deliberate policy choices coupled with a better understanding of what makes the economy grow. This is why I’m so excited to lead Equitable Growth in this moment, and this is why Equitable Growth’s mission is more important and relevant than ever.
Since 2013, Equitable Growth has provided more than $7 million in grants to more than 300 researchers aiming to understand how economic inequality affects growth and stability. Just last month, we announced $1.3 million in grant funding for 2021, a new record for the organization.
And we’ve managed to maintain this growth despite some pretty intense challenges, including the coronavirus pandemic. When the pandemic-induced recession hit, Equitable Growth was prepared. Our vast body of research exploring how inequality leads to a more fragile economy when shocks occur quickly moved from abstract to concrete.
The organization was able to meet the moment, connecting scholars and their research to policymakers desperate for data and recommendations to help guide their work. The result of that collaboration—as well as tireless organizing and advocacy from groups across the country—was the largest public program of economic relief in the nation’s history. Policies that both brought immediate relief amidst the recession and helped lay the groundwork for a more equitable future.
In 2019, for example, Equitable Growth, jointly with The Hamilton Project, published Recession Ready: Fiscal Policies to Stabilize the American Economy, a collection of big ideas and proposals aimed to help policymakers navigate the next recession. We were able to quickly amplify these ideas at the beginning of the coronavirus recession to help policymakers ameliorate the recession’s worst effects.
There are other examples as well. We published the books Vision 2020: Evidence for a Stronger Economy and Boosting Wages for U.S. Workers in the New Economy, which have provided evidence-backed policy ideas for the new administration and Congress. In fact, in the session later today on social infrastructure as an engine for equitable growth, you will hear insights from one of the essayists in Boosting Wages on how the lack of social investments contributes to market failures, such as many families’ inability to find or pay for adequate child care or cushion themselves against unexpected job loss.
Our in-house policy experts have extensively promoted ideas and policies ranging from investing in the care economy, to raising wages, understanding market competition, promoting new ways of measuring economic well-being, and combating fiscal austerity.
The list goes on.
We have built a foundation of research and have engaged with policymakers about the necessity for long-term, structural changes to the economy to ensure it works for families up and down the income ladder. In doing so, we’ve helped change the narrative about what makes the economy grow.
But there is more work to be done.
In addition to the pandemic exposing deep fragilities in our economy, 2020 also brought with it a racial reckoning in this country. And we have continued to see the consequences of climate change take hold, most recently with the devastation wrought by Hurricane Ida and the fires in California.
The current moment calls for a vision of sustained public investment in structures and institutions to spur equitable economic growth, with a focus on Black, Indigenous, Latinx, and Asian American workers. The current moment also calls for addressing inequities such as the gender and racial wage and wealth divides, and for centering people in that vision who have been ignored by policymakers for far too long.
And last but not least, the current moment calls for a coherent and comprehensive vision for emerging from the pandemic stronger and more equitable, unafraid of addressing the ongoing and overlapping racial, climate, and care crises our nation faces. Public investments in these areas can spur strong, stable, and broad-based economic growth by addressing longstanding racial and income inequality, driving clean energy and creating good jobs, and jumpstarting a new era of innovation.
This is a moment we must continue to face head on if we want an economy that works for everyone, not just the few.
The Washington Center for Equitable Growth through its Dissertation Scholars Program supports pre-doctoral students from the social sciences who are studying the links between inequality and growth. With a stipend of $50,000, as well as professional support—including connections to potential mentors and collaborators in the Equitable Growth network—the program invests in the next generation of scholars pursuing research that will inform evidence-backed policy solutions.
The Equitable Growth Dissertation Scholars for the 2021–22 academic year are Lauren Russell of Harvard University and Sheridan Fuller of Northwestern University. Both Russell and Fuller have started their in-house residence virtually.
Russell is a Ph.D. student in public policy at Harvard University and a familiar face at Equitable Growth, having received a doctoral grant in 2019 to study the link between a criminal record and access to opportunity and mobility. Her research interests are in labor economics and public finance, with a focus on the intersections of poverty, race, and inequality. Her current focus is centered on understanding and addressing social inequality as it relates to housing, mobility, and criminal justice.
Russell’s research agenda has two main prongs. First, she is examining whether and how a criminal record limits access to some neighborhoods in the United States—specifically, neighborhoods with high measures of social mobility, low crime rates, and good-quality schools. Second, she is exploring whether limited or precarious access to housing leads to recidivism and the relationship between recidivism and neighborhood quality.
In Russell’s own words, her two research objectives necessarily mean a “focus on the role that structural racism has played in determining outcomes in housing, mobility, and criminal system contact for Black and Indigenous people in the United States both historically and in the current moment.”
Russell also acknowledges the importance of working with both policymakers and key stakeholders to translate her research findings into real-world policy proposals. Her hope, she says, is that “this project will push forward the conversation on racial justice in access to quality housing and provide evidence in support of a policy response.” This link to policy is a key aspect of Equitable Growth’s mission of bridging the academic and policymaking communities in order to foster evidence-backed ideas that ensure a strong and stable economy for all.
Like Russell, Fuller also understands the importance of connecting research to policy, having spent time in both fields. Before beginning his doctoral program, he was a presidential management fellow at the U.S. Department of Health and Human Services, an experience that drove him, as he explains it, to strive to “develop a toolkit that would allow me to traverse both policymaking spaces and generate research that informs those policy processes and decisions.”
Fuller’s research since starting his graduate program in human development and social policy at Northwestern University has centered on income support programs, such as the Temporary Aid for Needy Families program, and the impact of these programs on U.S. families, and especially on children. He particularly looks at how the design of income support programs can either limit or expand access to vital resources for families, with implications for children’s well-being.
His current work has two primary goals. One is to determine whether racialized welfare policies hindered families’ access to cash assistance program benefits. The other is to identify long-term effects of these programs on children’s health, educational, and economic outcomes in adulthood. Through his research, Fuller will calculate the material benefits—including the aforementioned health, educational, and economic outcomes—that Black and Latinx families lost as a result of being excluded from income support programs, particularly as relates to the 1996 welfare reform legislation that reduced families’ access to cash assistance.
Fuller hopes his research will “provide policymakers with evidence on cash assistance’s effectiveness in protecting children and families experiencing vulnerability and economic hardship” with a specific eye toward “how the racialized design of welfare policies may exacerbate economic inequality and undermine the goal of creating strong, stable growth for all Americans.”
On the value of joining the Dissertation Scholars program, both Russell and Fuller expressed enthusiasm.
“I cannot imagine another institution that is better-fitting for my research trajectory or more equipped to support me as a Black woman economist seeking to make policy contributions that combat structural racism,” said Russell.
“I see [the program] as a unique opportunity to further my career as an engaged policy researcher who is prepared to bring my skills to developing and implementing policies that lead to strong, stable, and equitable growth for all Americans,” said Fuller.
We are excited to welcome Russell and Fuller to Equitable Growth, and look forward to working with both of them over the coming months.
In addition to funding the Dissertation Scholars Program, Equitable Growth awards research grants each year to scholars studying the impact of inequality on economic growth. In August, we announced a record $1.39 million in awards to the largest cohort of grantees—62 in total—in the history of the organization. These grants will go to faculty and staff at U.S. universities, as well as to several doctoral students working on their dissertations. Learn more about our grants program and click here to review the 2021 Request for Proposals.
President Joe Biden asked the U.S. Congress to consider investing $200 billion over 10 years in “a national partnership with states to offer free, high-quality, accessible, and inclusive preschool to all three- and four-year-olds, benefitting five million children.”1 This report calculates the 10-year costs and benefits of such a program. To understand the long-run implications of such a program, the analysis is then extended to a 35-year period. The key findings are:
Total costs and benefits over the first 10 years of the preschool program
A high-quality, publicly funded preschool education program will generate growing annual benefits that will surpass the more-slowly growing annual costs of the program within 8 years. Over the entire 10-year period, the present-value benefit-to-cost ratio is 1.01, which means that every tax dollar invested in the preschool program will generate $1.01 in total benefits over the first 10 years.
The benefits take the form of government budget benefits, increased wages and earnings of workers, and reduced costs to individuals from better health, less crime, and fewer incidences of child abuse and neglect.
Because the annual benefits grow more rapidly than the annual costs, in the 10th year itself, as opposed to over the course of the entire 10-year period, the present-value benefits exceed the present value costs of the program by a ratio of 1.68-to-1.
A high-quality universal preschool program will cost $6,600 per participant and could be expected to enroll about 64 percent of 3- and 4-year-olds, or just less than 5.2 million children, when it is fully phased in after 2 years.
The federal investment in the preschool program will also have a short-run stimulus effect that will boost Gross Domestic Product by $28.6 billion and create 210,200 additional new jobs during the first 2 years to help the U.S. economy recover more equitably and more sustainably from the coronavirus recession of 2020.
Government costs and benefits over the first 10 years
The present-value government benefit-to-cost ratio over the first 10 years of the preschool program is 0.47, which means that every tax dollar invested in the program will generate $0.47 in budgetary savings over the first 10 years. This means the budgetary savings of the preschool program, in the form of higher tax revenues and lower public expenditures on several public programs, will pay for almost half the total taxpayer cost of the preschool program during the first 10 years.
The margin by which taxpayer costs will exceed offsetting budget benefits declines progressively over each of the first 10 years of the preschool program. Thus, in the 10th year itself of the program, the tax-revenue increases and expenditure savings due to the preschool program pay for 68 percent of the program.
Total cost and benefits over 35 years
Over the first 35 years of the preschool program, the present-value total benefit-to-cost ratio is 4.93, which means that every tax dollar invested in the preschool program will generate $4.93 in benefits.
The annual benefits continue to grow faster than the costs. Thus, the benefit cost ratio improves with each subsequent year. In the 35th year, the final year of this analysis, the present value of the total benefits from government budgetary savings, increased compensation of workers, and reduced costs to individuals from better health, less crime, and reduced incidences of child abuse and neglect exceed the present value costs of the program by a ratio of 10.20-to-1.
By the 35th year, the long-run productivity effects of the preschool investment boost Gross Domestic Product by 0.5 percent and may generate as many as 787,000 new jobs.
Government costs and benefits over 35 years
Over the entire 35-year period, the present-value government benefit-to-cost ratio is 1.51, which means that every tax dollar invested in the preschool program will generate $1.51 in budgetary benefits over the first 35 years. This means the program more than pays for itself in budgetary terms.
Taxpayer costs initially exceed offsetting budget benefits, but by a steadily declining margin for the first 14 years. By the 15th year of the program, budgetary benefits exceed the taxpayer costs, and the program generates a budget surplus that grows every year thereafter.
In the 35th year of the program, the present-value government budget surplus amounts to $36.2 billion, with present-value government budget benefits that exceed the present-value government costs by a ratio of 2.84-to-1. This means that every tax dollar invested in the preschool program in the 35th year will generate $2.84 in budget savings, nearly triple the annual cost of the program.
Overview
The policy of investing in high-quality preschool in the United States provides a wide array of benefits to children, families, and society as a whole. Empirical research shows that all children, regardless of where their families are on the income ladder, benefit from preschool programs. In addition, the research confirms that higher-quality preschool programs provide greater benefits than lower-quality preschool programs.
Children ages 3 and 4 who participate in high-quality preschool programs require less special education and are less likely to repeat a grade. They and their families are involved in fewer incidents of child abuse and neglect, which reduces public child-welfare expenditures. And once these children enter the U.S. labor force, their incomes are higher, along with the taxes they pay back to society.
Both as juveniles and as adults, these children are less likely to interact with the criminal justice system, thereby reducing incarceration and criminal justice costs. As adults, preschool participants suffer less from depression and have lower rates of smoking, generating better health, steadier employment and income, and lower public health expenditures. And guardians of public preschool participants take advantage of the child care that, in effect, the programs provide to get a job or work longer hours and earn higher wages—and pay more in taxes.
Additionally, high-quality preschool programs provide budget benefits. High-quality preschool delivers government savings on Kindergarten through 12th grade spending, child welfare, the criminal justice system, and healthcare. High-quality preschool also increases government tax revenues. Thus, investment in high-quality preschool results in significant benefits for future government budgets, for the economy, and for society.
The economic and social benefits from preschool investment amount to more than just improvements in public balance sheets. A myriad of benefits accrue to the affected children, their families, and society as a whole. Children who participate in high-quality preschool programs fare better in school, have better home lives, and are less likely to engage in criminal activity than their peers who do not attend such programs.
The data show that participating children go on to higher achievement later in life, graduating from high school and attending college at a higher rate, and earning more once they enter the labor force. And the parents or guardians of children participating in preschool programs benefit both directly and indirectly from the services offered in high-quality programs.
Investment in young children not only has positive effects on the U.S. economy by raising incomes, improving the skills of the workforce, reducing poverty, strengthening U.S. global competitiveness, improving health outcomes, and reducing crime and incarceration rates. Given that the positive impacts of preschool are larger for at-risk than for more advantaged children, a universal preschool program will also help to reduce achievement gaps between poor and nonpoor children, ultimately reducing income inequality nationwide.
A nationwide commitment to high-quality early childhood education would cost a significant amount of money up front. But over time, government budget benefits outweigh the costs of high-quality preschool education investment—over time, high-quality preschool pays for itself. Yet our political system, with its 2- and 4-year election cycles, tends to underinvest in programs with lags between when investment costs are incurred and when benefits are enjoyed. The fact that governments cannot capture all the benefits of preschool investment may also discourage governments from assuming all the costs of preschool programs.
Although governments do not capture all the benefits of preschool investment, the economic case for making long-term public investment in preschool is compelling. Most government expenditures do not create offsetting receipts to the extent that early childhood education does. Indeed, it may be rare to find public programs that pay for themselves at the budgetary level. It is striking that a preschool program will have significant positive effects on the long-term government budget outlooks. This is why policymakers should consider a national preschool initiative as a sound investment on the part of government that generates substantial long-term benefits and not simply as a program requiring expenditures.
The evidence for long-term public investment in a nationwide public preschool program
Studies of high-quality preschool programs and their participants find that investing in the education of young children delivers a number of lasting benefits for the children, their families, and society at large, including taxpayers. Over time, these investments boost productivity, earnings, and taxes—and pay for themselves. This section of the report details the benefits to children, to families, to society, and to a more equitable economy.
Benefits for children
Assessments of well-designed and well-executed preschool programs find they provide a large variety of benefits to participating children. Preschool education enables young children to be more successful in Kindergarten and primary and secondary school, and in life after these school years, than children who are not enrolled in high-quality programs. In general, children who participate in high-quality preschool programs tend to have greater math, reading, and language abilities.2
More specifically, these children are better prepared to enter elementary school, experience less grade retention, and have less need for special education and other remedial coursework.3 They alsohavelower dropout rates, higher high school graduation rates, and higher levels of educational attainment.4 They also experience less child abuse and neglect, and are less likely to be teenage parents.5 Additionally, with the services offered in high-quality programs, they are better fed, gain improved access to healthcare services, have higher rates of immunization, and experience better health as children.6
As adults, high-quality preschool recipients boast higher employment rates, higher earnings, and lower rates of turning to public-assistance programs such as the Supplemental Nutrition Assistance Program and the Temporary Assistance for Needy Families program. Working and earning more, they pay more in taxes over their lifetimes. They exhibit lower rates of drug use and less frequent and less severe criminal behavior, engaging in fewer criminal acts both as juveniles and as adults and having fewer interactions with the criminal justice system, as well as lower incarceration rates. They also experience better health outcomes in adulthood, such as fewer episodes of depression and less tobacco use.7
In short, the benefits of high-quality preschool programs to participating children enable them to enter school “ready to learn” and help them achieve better outcomes in school and throughout their entire lives.8
Benefits for families
Parents and the families of children who participate in public, high-quality preschool programs also benefit. They benefit both directly from the services they receive in high-quality programs and indirectly from the child care provided by publicly funded preschool. In general, parents take advantage of the child care these programs provide by increasing their employment and earnings, and by investing in their own health and education.9
Mothers in particular benefit from preschool for their children. These mothers have better nutrition and smoke less during pregnancy.10 Parents with kids in preschool complete more years of schooling, have higher high school graduation rates, are more likely to be employed, have higher earnings, pay more in taxes, engage in fewer criminal acts, have lower rates of drug and alcohol abuse, are less likely to turn to public assistance programs, and are less likely to abuse or neglect their children.11
Benefits for society
Investments in high-quality preschool programs pay for themselves over time by generating benefits for participants, the nonparticipating public, and government itself. Studies of high-quality preschool programs find that they produce $2.63 or more in present-value benefits for every dollar of investment, with the programs whose subsequent benefits were studied over the longest periods generating well in excess of $7 in benefits per dollar of investment.12
The participants and their families get part of these total benefits, but the benefits to the rest of the public and government are large, too. On their own, these benefits outweigh the costs of these programs. Taxpayers benefit because preschool participants are less likely to repeat a grade or require expensive special education services or engage in crime or be incarcerated. They and their families also have less need for child welfare and public health services throughout their lifetimes. All of these are outcomes that reduce the cost of taxpayer-funded public services.
In addition, the increased lifetime earnings of the adults who receive a preschool education as children and of their parents enlarge the tax payments they make, pay for the preschool programs, and help fund other public services for society. Thus, it is advantageous even for nonparticipating taxpayers to help pay for these programs.
Benefits for a more equitable economy
Although children across the income distribution benefit from high-quality preschool education, the largest positive effects are on disadvantaged children from lower socioeconomic backgrounds.13 For mothers of preschool participants, the largest employment increases occurred among mothers without a high school degree.14 Thus, public investments in preschool reduce economic inequality.
A cost-benefits analysis of the American Families Plan’s proposal for a nationwide public preschool program
The 10-year, $200 billion American Families Plan’s investment in a nationwide preschool education program envisions a preschool program that is similar in its characteristics to the high-quality, public Chicago Child Parent preschool program. The Biden administration’s preschool proposal, for example, calls for a publicly funded preschool that will have “low student-to-teacher ratios, high-quality and developmentally appropriate curriculum, and supportive classroom environments that are inclusive for all students.”17
In addition, “educators will receive job-embedded coaching, professional development, and wages that reflect the importance of their work.” All employees participating in the preschool program “will earn at least $15 per hour, and those with comparable qualifications will receive compensation commensurate with that of kindergarten teachers.”18
So, what would be the effects of a 10-year, $200 billion public investment in a voluntary, high-quality, universal preschool program made available to 5 million 3- and 4-year-olds in the United States? To be consistent with the administration’s proposal, this analysis assumes a preschool program that is modeled on the Chicago Child Parent program. The program would operate 3 hours per day, 5 days a week, for 35 weeks a year (the school year), or a total of 525 hours.19 The program would be voluntary and available to all 3- and 4-year-old children.
The lead classroom teachers would all have bachelor’s degrees or higher, with certification in early childhood education, and would be required to pursue professional development. The teaching assistant in each class would have at least an associate’s degree. Teacher and staff pay would be high relative to most existing preschool programs, as compensation would follow the salary schedules of public schools.
For the children, the preschool program would provide health screenings, speech-therapy services, and home visitations. Parental involvement would be encouraged. The student-teacher ratio (including the assistant teacher) would be no higher than 17-to-2, and maximum class size would be 17 children. The curriculum would be comprehensive, with a focus that includes language and pre-reading skills, mathematics skills such as counting and number recognition, science, social studies, health and physical development, and social/emotional skill development.
This analysis assumes that the preschool education program would be largely housed within the existing or newly built public school infrastructure. But its services could be delivered in private care centers as well, if they meet quality standards.
A 2011 study of the Chicago Child Parent program that did not consider any short-run macroeconomic stimulus effects calculated a benefit-cost ratio of $10.83 by age 28.20 A 2015 study of the Chicago Child Parent program by the author of this report and Kavya Vaghul, then a research assistant at Equitable Growth, which focused only on the long-run productivity and behavioral impacts of the investments over 35 years, calculated that a voluntary, high-quality, public, universal preschool program modelled on that program would generate annual budgetary, health, and decreased crime benefits that would surpass the annual costs of the program within 8 years.
The 2015 study further found that within 35 years, when the first cohort of children would be in their late 30s, the annual benefits of the program would exceed the costs by a ratio of 8.85-to-1. Within 16 years, the budgetary benefits to governments alone—in the form of lower budget outlays for various programs and higher tax revenues—would surpass the costs of that program, and within 35 years, these budget benefits alone would exceed the costs by 2.37-to-1, or more than double the cost of the program.21 And these benefits would exceed the costs by a growing margin each subsequent year.
In this study, the costs and benefits of public investment in preschool, modeled on the Biden administration’s proposal, are calculated to analyze the effects of a $200 billion public investment over 10 years in high-quality preschool. Although the Biden administration’s proposal is for a 10-year program, this report assumes that the program will be renewed and become permanent. The analysis is then extended to consider the costs and benefits over a 35-year timeframe. These analyses take into account both the long-run productivity effects of preschool, as well as the immediate macroeconomic stimulus effects.
This study assumes that the program will be phased in over 2 years. The analysis considers budget effects on the federal government and the combination of state and local governments. Although responsibilities have shifted in the past and will continue to do so in the future over the 10- and 35-year timeframes used in this study, it is assumed that all levels of government will share in the costs of education, child welfare, criminal justice, and healthcare in the future in the same proportions as they do today.
Likewise, it is assumed that federal, state, and local tax rates will remain constant over the period analyzed in this study. It is assumed that federal, state, and local governments will maintain their efforts in Head Start, special education, and state preschool programs, but all additional costs attributable to the new preschool program will be paid by the federal government. However, regardless of which level of government pays the cost of the preschool program, the total budgetary benefits to all levels of government remain unchanged—only the cost burden shifts. In the case of a federally funded program, states and localities receive budget benefits without paying the additional costs of the program. And in a state-funded program, the federal government receives budget benefits without incurring the program’s additional costs.
Although the granular details of the plan are not yet all worked out, the preschool proposal currently being drafted and debated in the U.S. House of Representatives mimics the Biden proposal in many ways.22 The current House proposal seems to be designed to invest the same $200 billion in federal government money for universal preschool and enroll more children, though there is a greater expectation of the states and the District of Columbia sharing the costs and for the spending to sunset after 7 years. Assuming the program does not end after 7 years, these differences in cost sharing and enrollment do not significantly change the cost-benefit analysis provided here, although they would increase the number of children enrolled and reduce somewhat the ratio of benefits-to-costs calculated in this report.
An investment in a high-quality, publicly funded preschool program will generate annual costs and benefits that will vary from year to year. To evaluate the worthiness of the investment, we compare these annually varying costs and benefits, and calculate a benefit-to-cost ratio by using the standard economic and financial method of present value with a discount rate of 3 percent.23 Present value calculates the value in today’s dollars of future costs and benefits. If the ratio of present-value benefits-to-present-value costs is greater than 1, then the benefits of the investment exceed the costs, and it makes economic sense to undertake the investment.
Total costs and benefits over the first 10 years of the preschool program
A high-quality, publicly funded preschool education program will have both long-run productivity effects and a short-run stimulus effect on the U.S. economy that will generate growing annual benefits that will surpass the more-slowly growing annual costs of the program within 8 years. That is, over the first 7 years, the present-value costs will exceed the present-value benefits, but in the last 3 years, the benefits will be greater than the costs. Over the entire 10-year period, the present-value benefit-to-cost ratio is 1.01, which means that every tax dollar invested in the preschool program will generate $1.01 in total benefits over the first 10 years.
As noted above, the annual benefits grow more rapidly than the annual costs. Thus, in the 10th year alone, the present-value benefits—in the form of government budget benefits, increased wages and earnings of workers, and reduced costs to individuals from better health, less crime, and fewer incidences of child abuse and neglect—exceed the present value costs of the program by a ratio of 1.68-to-1.
The high-quality universal preschool program would cost $6,600 per participant and could be expected to enroll about 64 percent of 3- and 4-year-olds, or just less than 5.2 million children, when it is fully phased in after 2 years. As a result, the program would have a “gross” cost of about $34.3 billion annually when it is fully phased in. Some of this money, however, is already being spent on existing public preschool programs of mixed quality.24
A fraction of the funds used to finance these existing programs—equal to the ratio of children who would attend the new, high-quality preschool instead of the existing programs—would be used to fund the new preschool program. To avoid double-counting these expenditures, they are subtracted from the costs of the new program.
The bottom line is that the proposed high-quality universal preschool program would require approximately $19.1 billion in additional annual government outlays once it is fully phased in. The annual outlays for the program will then grow with inflation and the slowly growing population of children that it serves.
The federal investment in the preschool program during the first 2 years will also have a short-run stimulus effect that will boost Gross Domestic Product by $28.6 billion and create 210,200 additional new jobs to help the economy recover from the current recession.25
Government costs and benefits over the first 10 years
The present-value government benefit-to-cost ratio is 0.47, which means that every tax dollar invested in the preschool program will generate $0.47 in budgetary savings over the first 10 years. In other words, the budgetary savings of the preschool program, in the form of higher tax revenues and lower public expenditures on several public programs, will pay for almost half the total taxpayer cost of the program during the first 10 years.
For each of the first 10 years of the universal preschool program, taxpayer costs will exceed offsetting budget benefits but by a progressively declining margin. Thus, in the 10th year of the program, the tax revenue increases and expenditure savings due to the preschool program pay for 68 percent of the program.
The offsetting government budget savings begin small but grow over time. Budget savings in the first two years of the program will manifest themselves as reductions in child welfare expenditures as fewer children will be the victims of child abuse and neglect. In addition, some parents will take advantage of the universal pre-Kindergarten program for some of their child care needs, allowing them to work more and, thus, pay more in taxes.26
When the preschool participants enter the K-12 public school system, additional government budget savings will begin to appear, as these children will be less likely to repeat a grade or need expensive special education services. When the first cohort of children turns 10, further budget savings will begin to be realized as lower juvenile crime rates will require less public expenditure on the juvenile justice system.
The government budget deficit in the 10th year is based on a cash analysis that compares the impact of net government expenditures on the program to the additional taxpayer costs engendered by the program. Thus, the estimate that the government budget benefits pay for 68 percent of the cost of the preschool program considers all the additional costs due to the program but only the additional government budgetary benefits of the program—thereby ignoring the compensation, health, crime, and other social benefits of the program that accrue to the general public.
Once these other benefits of the program are taken into account, the universal preschool program, as noted in the previous section, pays for itself. In fact, the nonbudgetary benefits in the 10th year of the preschool program are, by themselves, equal to the costs of the program. Consequently, the budget benefits could be seen as bonuses that are in addition to the other nonbudgetary benefits that justify the investment.
It would similarly be unwise to judge the merits of investments in preschool solely in terms of their 10-year effects because many costs and benefits (both to the government and the public) manifest themselves only after 10 years and are a function of the long-run productivity effects of high-quality preschool.27 Among the other quantifiable costs and benefits of preschool investment are its impact on the future costs of K-12 education, the earnings of, and taxes paid by, preschool participants, their improved health, and their fewer interactions with the criminal justice system.
To capture these longer-term effects, we extend the analysis of costs and benefits to a 35-year framework, assuming that investment in preschool continues to grow with inflation and the population of 3- and 4-year-olds grows to maintain a 64 percent enrollment rate.
Total cost and benefits over 35 years
The present-value total benefit-to-cost ratio is 4.93, which means that every tax dollar invested in the preschool program will generate $4.93 in total benefits over the first 35 years.
The annual benefits grow faster than the costs. Thus, the benefit-cost ratio improves with each subsequent year. In the 35th year, the final year of this analysis, the present value of the total benefits from government budgetary savings, increased compensation of workers, and reduced costs to individuals from better health, less crime, and reduced incidences of child abuse and neglect exceed the present-value costs of the program by a ratio of 10.20-to-1. Thus, by making this investment, we will be leaving our children and grandchildren an enormous inheritance.
By the 35th year, the long-run productivity effects of the preschool investment boost Gross Domestic Product by 0.5 percent and may generate as many as 787,000 new jobs.28
Government costs and benefits over the first 35 years
Over the entire 35-year period, the present-value government benefit-to-cost ratio is 1.51, which means that every tax dollar invested in the preschool program will generate $1.51 in budgetary benefits over the first 35 years.
Taxpayer costs exceed offsetting budget benefits but by a steadily declining margin for the first 14 years. By the 15th year of the program, budgetary benefits exceed the taxpayer costs, and the program generates a budget surplus that grows every year thereafter. In the 35th year of the program, the present-value government budget surplus amounts to $36.2 billion, with total present-value government budget benefits that exceed the present-value government costs by a ratio of 2.84-to-1.
What explains this pattern of slowly growing budgetary costs and more rapidly growing budgetary benefits? On the cost side, after the first 10 years, the costs of the preschool program continue to grow as a result of inflation and the modestly increasing population of 3- and 4-year-olds that it serves. In addition, there are increases in government expenditures due to the increased educational attainment of preschool participants who drop out of high school at lower rates and complete more years of high school and go on to public colleges and universities at higher rates.
On the benefits side, the benefits identified during the first 10 years continue to manifest themselves. There are reductions in child welfare spending due to lower rates of child maltreatment. There are increased tax revenues generated from the earnings of parents who can now work due to the newly available child care. Public education expenditures diminish due to less grade retention and less need for expensive special education. And governments experience lower judicial system costs due to less juvenile crime, starting when the first cohort of pre-Kindergarten participants reaches age 10.
What’s more, there are significant additional budgetary benefits that manifest themselves after the first decade of the program. After a decade and a half, the first cohort of children begins entering the workforce, resulting in sharp increases in earnings and tax revenues because participants in high-quality preschool earn significantly more than nonparticipants. In addition, when the first cohort turns 18, governments experience lower judicial system costs due to less adult crime and lower public healthcare costs because preschool participants have fewer episodes of depression and lower tobacco usage.
Timing of phase-in
This analysis assumes a 2-year phase-in of the proposed preschool program. For political purposes, however, such as the need to secure enough votes to enact the program, it may be necessary to have a longer phase-in period. In addition, for practical reasons, such as the recruitment and training of teachers and staff and the establishment of appropriate locations, the preschool program may have to be phased in over a longer period. A longer phase-in would push back both the costs and benefits of the program and would reduce the 10- and 35-year benefit-to-cost ratios.
Omitted benefits of universal preschool
The various benefit-to-cost ratios of preschool investment are understated in our estimates because the analysis is limited to considering only benefits for which it was possible to obtain monetary estimates. Perhaps most important in terms of omitted benefits is the potentially positive effects on the children born to preschool participants who, as parents, will have higher earnings and employment, lower incarceration rates, and better health outcomes, which were not calculated.
Preschool is an investment in the parents of the future, who, as a result of that early childhood education, will be able to provide better lives and better educational opportunities to their own children. Hence, the children of preschool participants may be able to earn more and lead better lives. If this intergenerational effect were properly accounted for, then the benefits of preschool education may be substantially larger than those estimated in this analysis.
Other benefits that could not be monetized—such as the financial savings to families who would place their children in the publicly funded program but who, in its absence, would have paid the costs of private preschool—were left out.29 Since about one-quarter of all families with 3- and 4-year-old children place their children in private preschool programs, the savings to families from the use of publicly funded preschool are potentially very large.
Other examples of omitted benefits include the value of lower drug use and fewer teenage parents, the intrinsic value of the increase in the knowledge, skills, and literacy of participants, and the potentially greater levels of happiness and job satisfaction that preschool participants will experience as adults.
If the ultimate aim of public policy is to promote the well-being of individuals, families, communities, and the nation, then investment in high-quality preschool is an effective strategy. Investing in high-quality preschool can help us achieve a multitude of social and economic objectives, including:
Strengthening economic growth
Increasing incomes
Creating jobs
Reducing poverty
Tempering inequality
Improving education
Reducing crime
Ameliorating health problems
Improving public balance sheets
Moreover, high-quality preschool helps to create the conditions that enable people to achieve their potential, live lives of dignity, and maximize their well-being.
A high-quality, nationwide commitment to universal preschool would cost a significant amount of money up front, but it would have a substantial payoff in the future. Our political system, with its 2- and 4-year election cycles, tends to underinvest in programs with lags between when investment costs are incurred and when benefits are enjoyed. The fact that governments cannot capture all the benefits of preschool investment may also discourage them from assuming all the costs of preschool programs. Yet the economic case for public investment in preschool is compelling.
The economic and social benefits from preschool investment amount to more than just improvements in public balance sheets. Investing in young children has positive implications for the current generation of children, for future generations of children, and for earlier generations of children. The current generation of children will benefit from higher earnings, higher material standards of living, and an enhanced quality of life. Future generations will benefit because they will be less likely to grow up in families living in poverty. And earlier generations of children, who are now working or in retirement, will benefit by being supported by higher-earning workers who will be better able to financially sustain our public health and retirement benefit programs such as Medicaid, Medicare, and Social Security.
In short, strengthening the economic and social conditions of our youth will simultaneously help provide lasting economic security to future generations, as well as to all of us, including our elderly.
Investing in young children has positive effects on the U.S. economy by increasing economic growth, improving the skills of the workforce, reducing poverty, and strengthening U.S. global competitiveness. Crime rates and the heavy costs of incarceration to society will be reduced. Health outcomes improve as well. Additionally, given that the positive impacts of preschool may be larger for at-risk than for more advantaged children, a universal preschool program will help to reduce achievement gaps between poor and nonpoor children, ultimately reducing income inequality nationwide. In other words, investment in high-quality preschool promotes equal opportunity and widely shared economic growth.
The long-term nature of the benefits of preschool investment suggests that policymakers should not impose the costs of the investment (through lower public services or higher taxes) only on the current generation of beneficiaries. Instead, they should spread them over the lives of the current and future generations of beneficiaries of the programs.
Public investments in the quality and quantity of education are important determinants of productivity, growth, and international economic competitiveness. They are also central to human well-being. Investing in the education and skills of our people—our most valuable resource—can immediately boost the economy, create jobs, and help lift us out of our current economic malaise, while simultaneously laying the groundwork for future growth. Investments in the cognitive skills of our people help create pathways for more rapid future growth by enhancing long-run productivity, and they reduce economic disparities by providing ladders of opportunity for all.30
The evidence is clear that one of the most effective ways to promote faster and more widely shared economic growth is to raise academic achievement and narrow socioeconomic-based achievement gaps. Investment in universal high-quality preschool does both. By raising academic achievement, it will improve well-being now and for future generations of Americans, and it will encourage long-term economic growth.
—Robert G. Lynch is the Young Ja Lim professor in economics at Washington College and was a visiting scholar at Equitable Growth from 2014–2015.
