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

12/01/2001

Timing, Targeting, and Early Intervention

There has long been an argument as to whether public sector intervention to improve human capital outcomes is better made at the early stage of the life cycle or at the later stages. In his recent work Heckman argues strongly that intervention at the earliest stages is likely to be much more cost effective (Heckman 1999 p. 42). To a degree this is a matter best dealt with by resort to empirical evidence, which Heckman seeks to do. However, it may be useful to outline some theoretical considerations which impinge on this issue.

The traditional economist's model of rational investment decisions with respect to human capital which I sketched at the outset involves the estimates of the costs of the investment compared to the estimates of the benefits where the benefits are expected to be gained over a long period to time. A part of the calculus involves discounting of those longer term benefits to their present value at the point at which the initial investment is to be made(20). The longer the delay from the time of investment to the time of realizing the benefit, the lower the present value of the benefit. Thus one factor that works against higher valuation of the human capital investment in early childhood (in this case child care) as opposed to the human capital investment at adolescence or later (in this case skills training) is the long time period between the initial investment and the realization of benefits.

The contrary factor which works in favor of earlier investment and which has been stated in traditional human capital models is a longer period in which to accrue benefits. To the extent that benefits are limited to, for example, the remaining time in the workforce, investments in younger persons are likely to have a greater present value than those in older persons as there is a longer time period over which benefits may be realized.

Another consideration, cited by Heckman, is that there may be complementarities over time in skill development. Early stage skills may influence the returns to later stage investments in human capital, so, for example, higher "school readiness" engendered by specific types of child care exposure may generate higher returns to skill development investments in elementary school, and so on up a chain of human capital investments.

A counter consideration, however, is what has been referred to as "targeting" of public sector interventions. If public sector investments are justified on distributional terms to assist those with the greatest problems, then early investments may be much more poorly targeted than are those occurring later when the disadvantaged individual is more clearly identified. When talking about families in poor neighborhoods or children in poor families, we tend to forget that even though the probabilities of problems are much higher, the majority emerge without problems; while unemployment is high in poverty neighborhoods, the majority are employed; and while children raised in poverty are more "at risk" there is still a majority of "resilient" children who emerge without major problems. The same amount of public sector investment tightly targeted on those with problems may yield a far higher social benefit than it would if spread broadly across groups. While at present we have been hearing a great deal about early brain development and the importance of good developmental experiences at that time, in earlier debates about early childhood interventions the view that early deprivations could not be offset by later compensatory interventions was strongly challenged. To the extent that later compensatory action can be effective, tighter targeting on those in greatest need will be possible.

Working Parents and the Child Care Workforce

In attempting benefit-cost calculations for investment in child care, we should include in the benefits any direct benefits to the parents that come from an impact of child care on their workforce attainment. In addition, we should count benefits that come through increased family income which accrue to the children above and beyond the benefits (positive or negative) to the children derived directly from the child care experience, i.e., regardless of whether the child goes through child care or not, the child's well being may be increased by the goods and services attainable through the higher income of the parents.

One of the major problems facing the "child care industry" is the low pay and high turnover of child care staff. Of course, many of the issues regarding rationales for investment in training which have been reviewed above could be applied to the child care workforce situation as well.

I would argue that perhaps the deepest dilemma facing the expansion of child care derives from the nature of what economists might call "the child care production function," that is the extent and types of inputs necessary to produce child care services (whether "low quality" or "high quality"). Basically, in this case, it is the high adult labor input required per unit of child output. This impinges on the two sides of the child care market equation. The costs of child care are driven by the costs of providing adult care givers. The demand for child care is driven by the ability (and willingness) of parents to pay for the care. The costs of child care will equal a high percentage of the earnings of low income parents, even if the child care giver's wages remain low. Without public sector intervention, the low incomes of parents will translate into either no child care for them or into low payments to the child care giver. When one adds to this dilemma arguments that "quality child care" requires either higher adult to child ratios or higher-skilled-adults to child ratio, or both, then the dilemmas become even greater. It seems to me that without substantial public intervention and subsidy, there is no clear way out of this dilemma; we are faced with a low paid, high turnover child care workforce or no child care for low income parents and limited day care provided by a better paid child care giver workforce accessible only to high income parents.

The authors of two interesting papers approach this dilemma from a different standpoint. In Folbre and Nelson (2000), the authors address the fact that as women move increasingly into paid work, many of the "caring tasks" performed at home become paid tasks negotiated through markets. Child care is foremost among such "caring tasks." They suggest that the economic rhetoric which simply transfers the traditional market models to these "caring tasks" may be misguided and harmful. Because they have shifted from the home where neither the "input" of the care giver nor the "output" of the child care were priced, the social valuation of both was not explicitly quantified. Then, as they move into the market place that lack of valuation may carry over into misvaluation in the new market-mediated state. They call for research to develop a new framework that better values the mixture of "love and money" that market-provided child care represents.

In a related paper, Nelson (2000) provides a review of the ways economists seek to explain why child care wages are low and an elucidation  particularly shaped for child care advocates  of the underlying assumptions and technical details of such explanations. She also suggests counter-arguments to these economists' explanations.

Neither of these papers provides operational directions as to how the deep dilemma of the child care production function might be overcome, but they do provide useful warnings about the dangers of relying on traditional economic rhetoric in determining policy in child care.