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


Acemoglu, Daron, and Jorn-Steffen Pischke. "The Structure of Wages and Investment in General Training." Journal of Political Economy, vol. 107, pp. 539-572, 1999.

ENBibAcemoglu, Daron, and Jorn-Steffen Pischke. "Why Do Firms Train: Theory and Evidence." Quarterly Journal of Economics, vol. 113, pp. 79-199, 1998.

Autor, David. "Why Do Temporary Help Firms Provide Free General Skills Training?" Working Paper: National Bureau of Economic Research, 2000.

Barnow, Burt, Christopher King, and editors. Improving the Odds: Increasing the Effectiveness of Publicly Funded Training. The Urban Institute Press, 2000.

Barron, John, Mark Berger, and Dan Black. "Do Workers Pay for On-the-Job Training?" Journal of Human Resources, vol. 34, pp. 235-252, 1999a.

Barron, John, Mark Berger, and Dan Black. "Replacing General with Specific Training: Why Restricting Alternatives Makes Sense." In Research in Labor Economics, vol. 18, pp. 281-302, 1999b.

Betsey, Charles, Robinson Hollister, and Mary Papageourgiou. Youth Employment and Training Programs: The YEDPA Years. National Academy of Sciences Press, 1985.

Blau, David. "The Effects of Child Care Characteristics on Child Development." Journal of Human Resources, vol. 24, pp. 786-822, 1999.

Coleman, James. "Social Capital in the Creation of Human Capital." American Journal of Sociology, vol. 94, pp. 95-120, 1988.

Folbre, Nancy, and Julie Nelson. "For Love or Money  or Both?" Journal of Economic Perspectives, vol. 14, pp. 123-140, 2000.

Granovetter, Mark. Getting a Job. Harvard University Press, 1974.

Haveman, Robert, and Robinson Hollister. "Direct Job Creation: Economic Evaluation and Lessons for the United States and Western Europe." In Labour Market Policy and Unemployment Insurance, edited by A. Bjorkland, R. Haveman, R. Hollister, and B. Holmlund. Oxford University Press, 1991, pp. 5-65.

Heckman, James. "Policies to Foster Human Capital." National Bureau of Economic Research, 1999.

Heckman, James. "Is Job Training Oversold?" Public Interest, vol. 115, pp. 91-115, 1994.

Hershey, Alan, Marsha Silverberg, Joshua Haimson, Paula Hudis, and Russell Jackson. "Expanding Options for Students: Report to Congress on the National Evaluation of School-to Work Implementation." Princeton, NJ: Mathematica Policy Research, Inc., 1999.

Holzer, Harry, Keith Ihlanfeldt, and David Sjoquist. "Work, Search, and Travel Among White and Black Youth." Journal of Urban Economics, vol. 33, pp. 320-345, 1994.

Hoxby, Caroline. "Peer Effects in the Classroom: Learning from Gender & Race Variation." National Bureau of Economic Research, 2000.

Ihanfeldt, Keith. "Spatial Mismatch: A Review of Recent Studies and Their Implications for Welfare Reform." Housing Policy Debate, vol. 9, pp. 849-892, 1998.

Johnson, George E., and Richard Layard. "The Natural Rate of Unemployment: Explanation and Policy." In Handbook of Labor Economics, vol. 2, edited by O. Ashenfelter and R. Layard, 1986.

Johnson, James, Elisa Bienenstock, Walter Farrell, and Jennifer Glanville. "Bridging Social Networks and Female Labor Force Participation in a Multiethnic Metropolis." In Prismatic Metropolis: Inequality in Los Angeles, edited by L. Bobo, M. Oliver, J. Johnson, and A. Valensuela. Russell Sage Foundation, pp. 383-416, 2000.

Johnson, James, Walter Farrell, and Jennifer Stoloff. "African American Males in Decline: A Los Angeles Case Study." In Prismatic Metropolis: Inequality in Los Angeles, edited by L. Bobo, M. Oliver, J. Johnson, and A. Valensuela. Russell Sage Foundation, pp. 315-337, 2000.

Lang, Kevin, and William Dickens. "Neoclassical and Sociological Perspectives on Segmented Labor Markets." Cambridge, MA: National Bureau of Economic Research, 1987.

Lazear, Edward. "Educational Production." National Bureau of Economic Research, 1999.

Lerman, Robert. "Is the School-to Work Movement on the Right Track?" Urban Institute, 2000.

Nelson, Julie. "Why Does Child Care Pay So Little? A Critical Guide to Common Explanations'." Center for the Study of Values in Public Life, Harvard Divinity School, 2000.

Putnam, Robert. "Bowling Alone." Journal of Democracy, pp. 65-88, 1995.

Rosen, Harvey. Public Finance. Irwin/McGraw Hill, 1999.

Sacerdote, Bruce. "Peer Effects with Random Assignment: Results for Dartmouth Roommates." National Bureau of Economic Research, 2000.

Self-Help. The Business Side of Child Care. Durham, NC: Self-Help. Revised March 1999.

Secretary's Commission on Achieving Necessary Skills. "What Work Requires of Schools: A SCANS Report for America 2000." U.S. Department of Labor, 1991.

Solow, Robert. The Labor Market as a Social Institution. Blackwell, 1991.

Stiglitz, Joseph. Economics of the Public Sector. W.W. Norton, 2000.

Zimmerman, David. "Peer Effects in Academic Outcomes: Evidence from a Natural Experiment." Williams College, Williams Project on the Economics of Higher Education, 1999.


1.  Blau (1999) gives the following overview of the literature: "Recent reviews of the literatureidentify about 30 studies of the effects of child care inputs on child development or child behavior. Only about one-third of these studies provide interpretable resultsAround half of [the 30 studies] find that either smaller groups, more staff per group, or better trained teachers have positive and statistically significant effects on child development and behavior. The others find either no statistically significant effects of any of the inputs or statistically significant effects of the wrong sign'.Most of the studies include only a few measures of the home environmentand do not consider the possibility of selection on unobserved aspects of the home. In view of this and...other problemsit is hard to know how much credence to give to the results of these studies". Pp.788,789 His own work, reported in this article, using the National Longitudinal Survey of Youth, leads him to the following conclusion: "Child care characteristics have little association with child development on average. Associations are found for some groups of children, but they are as likely to be of the wrong' sign as they are to be of the sign predicted by developmental psychologists". Abstract, p.786

2.  See Hoxby (2000); Sacerdote (2000); Zimmerman (1999)

3.  Lazear (1999).

4.  There is recently an active publication of research related to these questions of whether and under what circumstances employer's might, or do, invest in general skills training. See, for example, Acemoglu and Pischke (1998); Acemoglu and Pischke (1999); Autor (2000); Barron, Berger, and Black (1999a); Barron, Berger, and Black (1999b).

5.  "Wait unemployment" occurs when workers perceive that there is a potentially higher wage opportunity out there for someone with their level of skills and there is a non-zero probability they might get an offer of such a job. In this case, rather than take a "market wage" job, they remain unemployed and "wait" for a shot at the "efficiency wage job".

6.  A somewhat fuller discussion of these rationales is provided in Haveman and Hollister (1991).

7.  The "non-accelerating-inflation rate of unemployment" (NAIRU) was a central analytic concept in this approach. Analysts sought to determine which alternative government policies  including employment and training  would most contribute to lowering the NAIRU. See Johnson and Layard (1986).

8.  In the 1960s and 70s institutional and radical economists argued that labor was barred from freely competing across labor markets because of institutional arrangements which essentially created different competitive conditions in various segments of the labor market. This disputed view was often referred to as "dual labor market theory." See Lang and Dickens (1987).

9.  See Solow (1991)

10.  See Betsey, Hollister, and Papageourgiou (1985) for a review and assessment of such programs.

11.  See Lerman (2000) and Hershey, Silverberg, Haimson, Paula, and Jackson (1999) for a brief history and assessment of school-to-work efforts.

12.  See Barnow, King, and editors (2000) for a quick review of the history of these programs and recent appraisal of effectiveness.

13.  See Skills (1991).

14.  Holzer, Ihlanfeldt, and Sjoquist (1994); Ihanfeldt (1998).

15.  See Johnson, Farrell, and Stoloff (2000).

16.  The noted landmarks in this development are: Coleman (1988) and Putnam (1995).

17.  The major exposition on networks and employment is found in Granovetter (1974). See Johnson, Bienenstock, Farrell, and Glanville (2000) for a recent concrete application.

18.  The fact that many state government and resource and referral agencies run course for child care providers on business management is evidence for this statement. Here is a quote from a manual for child care advocates and lenders: "Our years of experience lending to child care providers have shown that the lack of technical assistance on management issues is a major barrier to the expansion and quality improvement of the field" p. 3 Self-Help (1999).

19.  This is a classic example of what in the economics literature is referred to as the principal-agent problem. The problem is that the goals of the principal and agent will not perfectly coincide. An agent may make side-deals that further his goal (more profit) at the expense of sacrificing some of the goals of his principal. I could have introduced this terminology at several places earlier but have deferred it until now.

20.  The discounting to present values is necessary in order to compare different investment opportunities which may have quite different time patterns in the benefit stream. Some investments may yield high benefits soon after the initial investment but tail off rather quickly after that, while other investments yield low benefits in the first few periods after investment but then grow to be quite large over the longer period of time. In order to compare these two investments we need to collapse the time dimension so we can compare the benefits directly in a single dimension. We collapse the time dimension by discounting future benefits into a single present value. The discounting reflects the fact that benefits that are realized early in a time period can in theory be reinvested in some other investment opportunity and earn more benefits there; there is an opportunity cost in waiting for benefits which can only be realized later in the time period. By discounting to present values we distill the diverse time patterns into a single dimension which allows direct comparison across the diverse investment opportunities.