The Economic Rationale for Investing in Children: A Focus on Child Care. Distributional Rationales

12/01/2001

Beyond rationales for public sector investments that are based on the sorts of market failures I have been reviewing, there is a general case often made for concerns about the distribution across the populace of command over resources and opportunities.

The economist's model of the operations of the economy takes as a given some initial distribution of property rights and the criterion of efficiency in the allocation of resources is defined conditional upon that initial distribution of property rights. Even if markets are working efficiently there will be inequalities in outcomes. Some of the rationales for public sector investment in training and employment are based on distributional criteria in light of the inequalities of property rights or inequalities in outcomes.

In the discussion of human capital rationales above I already mentioned some types of situations that could arise for which public sector investment is justified not on the grounds of market failures but on distributional grounds. For example, general training might not be undertaken because the individual worker would be unable to finance the investment in that training. A public sector intervention to facilitate such financing could be justified on the grounds of a more desirable distribution of opportunities to obtain human capital.

Education and Youth Programs

The public education system has always been justified, in part, on distributional grounds. Even given the public education system, there have been, in recent years, arguments for further public sector interventions on distributional grounds due to what some perceive as biases in the structure of the public school system in favor of those intending to go on to post-secondary education. In the late 1980s and early 1990s we had reports about "the forgotten half" of young Americans who would not go on to post-secondary education.

Two somewhat different public sector investments have been shaped with this "forgotten half" in mind. First, ever since the 1960s there have been major public sector investments in youth employment and training programs outside of the school system(10). Second, in 1994 the Federal government passed the School-To-Work Opportunities Act. This program provided funds to States to pass on to schools to help in the creation of curricula and programs designed to facilitate movement from high school to the work place(11).

Both of these types of programs could be justified on the grounds of distributional concerns (though they have also been justified on human capital investment grounds).

The "Second Chance System"

The youth employment and training programs have often been referred to as part of a "second chance system." Other programs included in such a system are employment and training for adults that include major elements of remediation for deficits in "basic skills", i.e., basic reading and mathematics. This category could include many of the employment and training programs funded first under the Concentrated Employment and Training Act (CETA) of 1973, then under its successor the Job Training and Partnership Act (JTPA) and finally under the latest formulation, the Workforce Investment Act (WIA) of 1998(12). While most of these programs have been justified as skills augmentation under the human capital grounds spelled out above, they all clearly focused primarily on "disadvantaged workers" and in that sense were also justified under distributional concerns.

Skills Mismatch and Spatial Mismatch

In the later 1980s and in the 1990s two "mismatch" themes began to emerge which were turned into rationales for certain public sector employment and training efforts.

The "skills mismatch" theme focused on the apparent effects of changing technology and increased international trade, e.g. "globalization.(13)" The argument was that the changing nature of technology was increasing the level of skills required in most jobs at the same time that increasing international competition was reducing the opportunities in the U.S. for jobs that required relatively few skills.

The fastest growing segments of the population that would make up the future labor force were groups that were more likely to have a large proportion of low skilled individuals. These are groups whose members had higher probabilities of not completing high school and lower probabilities of continuing on into post-secondary education and, therefore fewer potential workers with high skills. Thus, it was projected, there was likely to be a growing mismatch between the skills required for continued vigorous economic growth and international competitiveness, on the one hand, and the skill attainment of many new entrants into the workforce, on the other. Public education, employment and training programs were all needed, it was argued, to reduce this "skills mismatch". The rationales for public employment and training under this argument were both long term growth, discussed above, and distributional concerns that large segments of the population might not get the skills needed to do well in the "new economy."

The "spatial mismatch" theme focused on the shifting location of jobs, particularly lower-skill-requirement jobs, from the inner city to the suburban fringe(14). The argument was that technology had changed such that central city location was less advantageous. This resulted in a growth in jobs in the suburban fringe and a decline in employment in the central city. The jobs moved but the low skilled people were constrained in their residential choice  this was (and is) particularly true for African-Americans  and could not move to residences near the suburban job locations. Further, the public transportation systems were not well aligned to make the trip of workers from the inner city to the suburban jobs easy and inexpensive.

Public intervention to alleviate spatial mismatch would be justified on distributional grounds; the burdens of weakened employment due to these changes were being unfairly borne by inner city, particularly minority, persons. Interventions to alleviate spatial mismatch could be taken in terms of some of the "market switching" forms suggested above. In addition, programs to reduce residential segregation would be justified, programs to improve transportation from the inner city to the suburban job locations would be justified, subsidization of movement from inner city housing, particularly public housing, to housing in the suburbs would be justified.

"Soft skills", Contextual Learning, Social Capital and Social Isolation

I group together here some disparate themes that arose in the 1990s with regard to employment and distributional considerations.

Once again under the general heading of technological change in job requirements, it has been argued that, in addition to an escalation in required technical skills, the new organization of work puts greater emphasis on what have been called "soft skills." "Soft skills" include: ability to communicate clearly with co-workers, supervisors and/or customers, ability to participate in team work, regularity in attendance, and sometimes dress and diction. Particularly as employment has shifted away from industrial settings toward service industries, "soft skills" are believed to become more important. This combines, in some people's minds, with the increased social isolation of low skill inner city residents so that there is an increasing disjuncture between "work place culture" and "street culture." There has been an increase in publicly funded training programs that place heavy emphasis on "teaching soft skills."

Because of the perceived increasing penalties associated with weak basic skills  reading and math  and the aversion of many without high school degrees to classroom settings for training, a greater emphasis has been placed on "contextual learning," i.e., basic skills remediation that is achieved in the context of work-related materials. For example, remediation would be achieved in the context of the reading abilities necessary to understand basic manuals describing processes required for a given job or basic math necessary for calculations in running machinery or doing basic accounting calculations.

As already noted, "spatial mismatch" hypotheses have pointed to the decline in the economic well-being of residents of the inner cities, the increasing concentration of poverty in such areas and the social isolation generated in these processes.(15) Particularly in the 1980s and 1990s the concept of "social capital" analogous to that of "human capital" has been increasingly developed(16). These concepts have been invoked as part of distributional arguments for public sector intervention in labor markets of the sort outlined above for dealing with "spatial mismatch". A related part of the "social capital" concept is that of "bridging social networks(17)". Weaknesses in networks of some groups are hypothesized to create barriers to movement into mainstream employment. Some public training programs have been in part justified as serving to compensate for these weak networks.

Welfare Reform

Since the early 1970s there have been attempts to "reform" the Aid to Families with Dependent Children (AFDC) program which put emphasis on increasing work among AFDC recipients. In the late 1980s a major overhaul of AFDC was legislated in the Family Support Act (FSA). FSA put heavy stress on increasing work requirements for AFDC recipients but combined that with support for training programs designed to facilitate the movement to work by long term welfare recipients through "basic skills" training and combinations of "work readiness" instruction and, in some cases, higher skills training. It was clear that distributional rationales had underlain the AFDC program for some time and that the employment and training components were similarly targeted under distributional criteria.

Finally, in 1996 there was the Personal Responsibility and Work Opportunity Act (PRWORA) welfare reform which stiffened the work requirements for receipt of cash assistance, now called Temporary Assistance for Needy Families (TANF), and, most notably, put a time limit of five years over an entire lifetime for receiving TANF payments. Under this reform effort there has been a large increase in discretion of the States over how TANF funds are used and so there is considerable diversity in the range of employment-related programs which they have created. Almost all have extensive job search assistance programs, many have work readiness training, some have "basic skills" remediation, some have short term public service jobs. All of these efforts have a distributional rationale. It was felt that if work is to be required of TANF recipients then some steps would need to be taken to assist the recipients, where needed, to get and hold jobs.

Applications to Child Care of Distributional Rationales

There are some repeated themes throughout this distributional section which possibly carry over to rationales for public investment in child care.

First, the basic distributional rationale derives from unequal access to resources and opportunities across the population. Unequal ability to finance access to child care is clearly analogous to unequal ability to finance job training.

Second, to some degree for custodial parents who are still in high school, access to child care can be an important component for increasing the chance of completing high school and to participate fully in school-to-work programs. Certainly for those who enter the "second chance" system, access to child care for custodial parents can be critical. In both these cases distributional rationales enter in because of unequal access to child care resources.

Third, in both the "skills mismatch" and "spatial mismatch" situations, access to child care for custodial parents can be critical in helping them overcome the mismatch. Particularly in the "spatial mismatch" case there are important locational considerations for custodial parents. If there is to be a long trip to work from the inner city to the suburban job site then child care location tremendously complicates the time necessary to complete the trip to and from work. The public sector could facilitate the development of child care slots near the homes of these workers or it could, on the other hand, subsidize child care facilities at or near the suburban job sites.

Fourth, social isolation can be reduced through the development of stronger neighborhood institutions. Common meeting at child care drop-off and pick-up might enhance connectedness. In some circumstance the child care program has become the site as well of parent training  it provides "teachable moments" for conveying better parenting practices. Perhaps "bridging social networks" can develop around the associations arising from utilization of common child care facilities. Public sector intervention to promote these opportunities could be justified under distributional rationales.

Fifth, though it is rather tenuous, one might argue that the foundations for "soft skills" can be built in the child care situation through an early exposure to socialization within a group of peers. In some of the debate over why the smaller class size in Tennessee's Project Star experiment may have had a positive effect some analysts have argued that the effect may work through better socialization skills developed in the small group setting.

Sixth, a particularly strong case can be made under welfare reform considerations for increased public investment in child care. If TANF recipients are going to be required to work then we need to take steps to try to make sure that they are able to work and affordable, accessible child care is a critical element in that process. This would hold not only for those currently receiving TANF but also for those "in danger of needing TANF". Public support for child care can help prevent the loss of employment and the necessity to resort to TANF.

Most of these distributional rationales would apply to arguments for public investment in the quantity of child care. The fifth rationale about "soft skills" might however be applied to arguments for support of quality child care.