Maximizing the ROI on Investments in Human Capital

heckmanby James A. Bacon

There is a sterile quality to the debate over universal childhood education. Liberals cite studies that say that it makes sense to invest in pre-school for poor children on the grounds that it increases the odds that kids will perform better academically, thus less likely to drop out of school, more likely to get a job, and less likely to get incarcerated, saving society billions of dollars in the long run. Noting that pre-school can’t overcome the affects of dysfunctional families and lousy schools, skeptics (usually conservatives) say the positive effects fade within a few years and question whether creating another massive entitlement program will do any good.

As a society, we’re desperate to find something that helps poor children overcome the debilitating consequences not only of material poverty but an upbringing so impoverished that many don’t know their colors, numbers or ABCs by the time they enter kindergarten.

James V. Koch, professor emeritus of Old Dominion University, puts a different spin on the pre-K issue in the “State of the Region: Hampton Roads 2015.” He sides with those who believe that high-quality early childhood education has a large positive benefit but proposes a funding source for pre-K that makes the idea more palatable to conservatives.

Drawing upon the work of Nobel Laureate James Heckman, Koch argues that social investment in human capital accomplishes more in a child’s early, formative development than later in life when his or her cognitive abilities have been largely set. As seen in the conceptual graph above, investing in enriching a child’s development at ages 0-3 yields a higher return than in preschool, which in turn provides a higher return than school, which in turns pays back more than job training.

Koch cites the famous Perry Preschool Project which began in Ypsilanti, Mich., in the 1960s. A $21,000 per pupil investment (in today’s dollars) yielded cumulative savings of $240,000 by age 40. Whether those results could be replicated is the subject of debate. But an even bigger problem is political. Someone is going to have to pay for universal pre-K. Middle-class parents are not likely to be thrilled about paying more in taxes so poor children can attend programs that cost two to three times what they can afford for their own children.

That political calculus could change if the funding comes from elsewhere. Writes Koch: “There is now a strong argument for shifting resources away from later-in-life job training programs and re-directing them to early childhood programs.” But that creates a political problem of its own, he concedes: Benefits from early-childhood programs take years to become manifest; the pain of training cutbacks is immediate.

Koch advances another novel argument: Early childhood education is good economic development.

One must compare these salutary results with the much less impressive outcomes that are generated by conventional businesses subsidies (usually tax incentives) that government units at all levels habitually utilize in hopes of improving their economic situations. … In general, tax incentives yield low returns for cities and counties that rely upon them, and typically yield negative returns for regions and states.

Bacon’s bottom line:

I’m skeptical of the whole ball of wax — early childhood intervention, government-administered job training programs, business subsidies, tax incentives, you name it. But if government has got to “do something” to reverse the pathologies and dysfunctions created by previous efforts to “do something,” then voluntary universal pre-K arguably would make a better long-run investment than jinky tax breaks and duplicative and ineffectual job training programs. Make universal pre-K spending neutral by cutting less effective programs, and I just might buy into it.

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18 responses to “Maximizing the ROI on Investments in Human Capital”

  1. LifeOnTheFallLine Avatar

    Middle class parents are really stupid if they think their children wouldn’t be afforded the chance to go to UNIVERSAL pre-K.

  2. “. . . if the funding comes from elsewhere . . ..” Right!

  3. Hill City Jim Avatar
    Hill City Jim

    I believe it wasn’t the critics that claimed the benefits faded by the 3rd grade but the US government. And why are there “poor children”? When the “poor” adults that don’t have two nickels to rub together procreate, you are bound to have children that are almost guaranteed to fail. In Lynchburg region one half of all babies born are paid for by Medicaid, those that pay their own bills and or insurance and with their taxes pay for two because the hospitals aren’t losing money. I for one am tired of hearing about the poor children. Studies say it cost a quarter of a million bucks to raise a kid. If you can’t afford that quit having them!

    1. LifeOnTheFallLine Avatar

      ” I for one am tired of hearing about the poor children.”

      Here’s a fella who stopped reading his Bible after Jesus said “Suffer the children.”

      I do…respect’s not quite the right word…appreciate(?) the efficiency with which you expose your callous disregard for other human beings. I bet you’re a treat at parties.

      “If you can’t afford that quit having them!”

      This displays a stunning lack of understanding of – at least – biology and capitalism.

      1. Hill City Jim Avatar
        Hill City Jim

        My bible tells me “And whoever does not provide for relatives and especially family members has denied the faith and is worse than an unbeliever.”

        I am guessing you only read the parts of the bible that you choose.

        I have no children on welfare… you?

        1. LifeOnTheFallLine Avatar

          The Bible is different than Jesus, and of course Timothy was from Paul to Timothy and not the actual word of Christ, but hey, whatever gives you an excuse to dismiss the suffering of others, right? Also, that passage in Timothy is referring to the proper treatment of widows, but, again, whatever gets you to the point where you can rationalize your refusal to care about poor children even though your Bible also includes these words from actual Jesus: “And the King will answer them, ‘Truly, I say to you, as you did it to one of the least of these my brothers, you did it to me.’”

          But if the Son isn’t good enough, perhaps you’d like to hear from the Father: “For there will never cease to be poor in the land. Therefore I command you, ‘You shall open wide your hand to your brother, to the needy and to the poor, in your land.’”

          I’m an atheist, so I don’t read the Bible at all anymore other than for my own interest, but I still retain enough to remember that God didn’t want us to abandon poor people. In fact, if memory serves, the mistreatment of the poor is listed in Ezekiel as one of the primary sins of the people of Sodom.

          I have no children on welfare and I feel no particular pride in that fact.

          1. Hill City Jim Avatar
            Hill City Jim

            Never said I wanted to abandon the poor. Just said if you cannot afford to take care of your offspring, don’t have them. And the verse pertains to “especially family members.”
            Perhaps you should go back to reading the bible for it tells us that “Thou shall not steal” and those that knowingly bring children into this world knowing that they cannot provide for their care are deliberately stealing from those of us that have to pick up the slack. It seemed to me that your original post, and in the last, in trying to shame me with biblical verse, led me to believe that perhaps that you too were a Christian. Have as many kids as you want, just don’t expect me to pay for them. I am my Brother’s keeper but that does not absolve him of the sin of not providing for his own.

          2. LifeOnTheFallLine Avatar

            I didn’t know you were a Christian when I made my original comment. It was intended as a jokey Bible reference, so any shame you may have felt is strictly on you.

            “Never said I wanted to abandon the poor.”

            Doesn’t really square with…

            “I for one am tired of hearing about the poor children.”

            And you have a fundamental misunderstanding of what theft is since if you were ever to suffer a misfortune you would be able to avail yourself of what remains of our social safety net. That you think this is impossible and use it as a cudgel against your neighbors betrays a staggering amount of vainglory.

            I guess we all have our sins to answer for in the final tally.

  4. LarrytheG Avatar

    well heckfire – I, for one, am tired of paying 30K a year to incarcerate someone… that’s like 300K a decade and that doesn’t count the criminal justice system to arrest him nor the entitlements he and his family will receive.

    and as far as ROI is concerned – where is the ROI for the discretionary money that schools spend over and above what the State actually requires? what is that money spent on and is verified to be returning on investment?

    here’s what I favor. I favor taking the local discretionary money away from the public schools and give it to voucher schools for the kids we say we’re not sure of the ROI on.

    And make the arrangement with the private voucher schools – pay for performance. If the kid does not get better and stay better – no money.

    That will leave the public schools only having to teach the easy-to-teach kids – and if the parents want extras then make it fee-based.

  5. LarrytheG Avatar

    re: Having kids you cannot afford is “stealing”.

    does that mean when you’re starting out and have kids when you have no idea how your own future is going to play out financially – that it’s irresponsible and akin to intending to steal from others if you never have great financial success in life?

    serious question.

    my impression is that a whole crap load of people have kids with no guarantee that they’ll ever be able to pay for them.

    This would extend to things like school as HCJ points out – why complain just about poor kids – how about the kids in public school – period – that eat up one half of the total local and state budgets?

    How about group health insurance where – great gobs of insurance benefits go to families raising kids… essentially subsidized by others in group health insurance who are single and/or don’t have kids, empty nesters, etc?

    I remember my dear mother-in-law – in the kitchen one night who was pontificating that she was tired of paying taxes to educate other kids now that her own kids had grown.. Her view was that you should have to pay taxes for education unless you had kids in school!

    I do “get” where HCJ is coming from on the “poor” but the reality is our entire tax code and economic institutions like health care are set up to subsidize the care and needs of kids – even for the middle class.

    this is totally separate from the influence of religion … the bible, etc.

    1. Hill City Jim Avatar
      Hill City Jim

      “my impression is that a whole crap load of people have kids with no guarantee that they’ll ever be able to pay for them”

      Absolutely correct. Or any thought that it is their responsibly. As I originally posted, half the kids born are paid for with Medicaid so the healthcare system charges double for those that pay. Heck, I don’t care…just let somebody else pay for it…you know, cause the bible says so.

      Mrs. Thatcher had it right. Socialism is fine til you run out of “other people’s money.”

      1. LarrytheG Avatar

        I wonder how many find out how much it’s going to cost to have the child and save up so they can pay the bill?


  6. Hill City Jim Avatar
    Hill City Jim

    Big difference between taking care of the misfortunate and the deliberate sinners. Pretty sure my bible says if you don’t work you don’t eat. You are not entitled to the things that others have that have been acquired by their labor. Stealing is stealing.

    1. LarrytheG Avatar

      what was all that stuff about fishes and loaves and teaching?

  7. Hill City Jim Avatar
    Hill City Jim

    Live it down, there’s a lot of us been pushed around
    Red, yellow, black, white and brown with a tear of their own
    Oh, can’t you see while you’re pickin’ on society
    That the leaves on your family tree are callin’ you to come home

    You’re the keeper of the castle, so be a father to your children
    The provider of all their daily needs
    Like a sovereign Lord protector be their destiny’s director
    And they’ll do well to follow where you lead

    Oh, in your head, you don’t believe what the good book said
    You’re gonna strike out now instead, ’cause the world’s been unkind
    Put through thick and thin whatever shape your heart is in
    You only have one next of kin better keep ’em in mind

    You’re the keeper of the castle, so be a good man to your lady
    The creator of the sunshine in her day
    Tend the garden that you seeded be a friend when a friend is needed
    An’ you won’t have to look the other way

    Live it down, there’s a lot of us been pushed around
    Red, yellow, black, white and brown with a tear of their own
    Oh, can’t you see, while you’re pickin’ on society
    That the leaves on your family tree are beggin’ you to come on home

    Live it down, there’s a lot of us been pushed around
    Red, yellow, black, white and brown with a tear of their own
    In your head, you don’t believe what the good book said

    Four Tops – Keeper Of The Castle Lyrics | MetroLyrics

  8. LarrytheG Avatar

    From the Bible to the Four TOPs?


    HCJ – are you basically opposed to public education?

  9. Hill City Jim Avatar
    Hill City Jim

    Why do you ask that? I am basically opposed to people bringing more people into the world that have zero chance of being able to provide for them and do so knowing that. That is stealing from those of us that have to assume their responsibility.

  10. LarrytheG Avatar

    Right, I GET THAT and I’m in agreement with the sentiment but accept the reality that we end up with.

    But do you believe in the concept of all of us paying taxes to provide a free education to any child?

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