Early Childhood Development as Economic Development and Crime Prevention

Arthur Rolnick and Rob Grunewald

Federal Reserve Bank of Minneapolis

Arthur J. Rolnick is senior vice president and director of research at the Federal Reserve

Bank of Minneapolis. Rolnick’s essay on “The Economics of Early Childhood Development” has gained national attention. A native of Michigan, Rolnick has a doctorate in economics from the University of Minnesota.

Rob Grunewald conducts regional economic research and has co-authored articles on the economics of investing in early childhood education, which have gained national attention. Grunewald holds a bachelor’s degree in economics and religion from St. Olaf College in Northfield, Minn., and is a graduate student in applied economics at the

In comments to business leaders in Omaha, Neb., regarding income inequality in the

United States, Federal Reserve Chairman Ben Bernanke said, “Although education and the acquisition of skills is a lifelong process, starting early in life is crucial. Recent research—some sponsored by the Federal Reserve Bank of Minneapolis in collaboration with the University of Minnesota—has documented the high returns that early childhood programs can pay in terms of subsequent educational attainment and in lower rates of social problems, such as teenage pregnancy and welfare dependency.”

The research cited by the chairman is contained in several papers we have written over the past four years on the economic benefits of investments in early childhood education. 

We have argued that investments in human capital prior to kindergarten provide a high public return. Such investments – especially for at-risk children – can have a substantial impact on the success of children’s futures as students, workers, and citizens in democratic society. That is, the most efficient means to boost the productivity of the workforce 15 to 20 years down the road is to invest in today’s youngest children. According to James Heckman, Nobel laureate economist at the University of Chicago, “Enriching the early years will promote the productivity of schools by giving teachers better-quality students. Improving the schools will in turn improve the quality of the workforce.” 

The high returns to investments in early education accrue not only by boosting labor productivity, but also by reducing costs to society, such as remedial education and crime. The cost of crime in the United States is estimated at almost $1.3 trillion per year, or $4,818 per person. Research shows that investments in high-quality early education appear to reduce future crime and are more cost effective than additional spending on police or incarceration. Aside from comparing returns on investment with other types of crime prevention and education spending, we contend that investing in early childhood development yields a much higher return than most government-funded economic development initiatives.

For well over 20 years, government leaders at the state and local levels have invested in economic development schemes with public dollars that are at best a zero-sum game. In the name of economic development and creating new jobs, virtually every state in the union has tried to lure companies with public subsidies.  Previous studies have shown that the case for these so-called bidding wars is shortsighted and fundamentally flawed. From a national perspective, jobs are not created—they are only relocated. The public return is at most zero. And the economic gains that seem apparent at state and local levels are also suspect because they would likely have been realized without the subsidies. In other words, what often passes for economic development and sound public investment is neither.

We don’t pretend to have all the answers to economic development, but we’re quite certain that investing in early childhood education is more likely to create a vibrant economy than using public funds to lure a sports team by building a new stadium or attracting an automaker by providing tax breaks. Several longitudinal evaluations all reach essentially the same conclusion: The return on early childhood development programs that focus on at-risk families far exceeds the return on other projects that are funded as economic development. Cost-benefit analyses of the Perry Preschool Program, the Abecedarian Project, the Chicago Child-Parent Centers, and the Elmira Prenatal/Early Infancy Project showed annual rates of return, adjusted for inflation, ranging between 7 percent and 18 percent. The Perry Preschool Program and Chicago Child-Parent Centers provided preschool at ages 3 and 4, Abecedarian provided full-day care and education for children a few months old through age 4, and the Elmira Prenatal/Early Infancy Project provided home visits by a nurse to high-risk mothers during pregnancy until the child turned age 2.

The benefits attributed to these early education programs include reductions in special education and crime, and increases in tax revenue. Reductions in the cost of crime played a large role in boosting overall rates of return, particularly for the Perry Preschool Program. Only the Abecedarian Project did not include cost reductions due to decreases in crime because differences in crime rates between the treatment and control groups were not statistically significant.

The study of the Perry Preschool Program showed a decrease in the percentage of adults at age 40 who were arrested five or more times from 55 percent for the control group to 36 percent for the treatment group, a drop of 35 percent. In the Chicago Child-Parent Center study, the percentage of juveniles arrested decreased from 25 percent for the comparison group to 17 percent for the treatment group, a reduction of 33 percent. The Elmira Prenatal/Early Infancy Project study showed the mean number of child arrests by age 15 dropped by 50 percent; meanwhile, the mean number of mother arrests decreased by 69 percent.

 In each study, the drop in crime led to reduced costs for incarceration, police protection and courts. Furthermore, the costs to the victims of crime decreased, including loss of property and suffering. Added together across all four longitudinal studies, the savings to crime alone could justify increased investment in high-quality early education.

In addition to the longitudinal studies, a meta-analysis by Washington State Institute for Public Policy creates an average composite of 53 early education programs to compare the return on investment with other intervention programs for youth. The results for early childhood education for 3- and 4-year-old children, the Nurse Family Partnership, and home visiting programs for at-risk mothers and children compared favorably with other intervention program types reviewed by the authors, including several parole supervision programs for juvenile offenders.

These findings, promising though they are, pose a challenge: Small-scale early childhood development programs for at-risk children have been shown to work, but can their success be reproduced on a much larger scale? There are reasons to be skeptical; some recent attempts at scaling up early childhood development programs have been disappointing. However, it’s our view that those programs failed in large part because they were based on old models that were ill-suited to get results. It’s time to seriously reconsider how to effectively help at-risk children and their families. Based on a careful review of past and current programs, we believe that large-scale efforts can succeed if they are market-based and incorporate four key features: focus on at-risk children, encourage parental involvement, produce measurable outcomes, and establish a long-term commitment.

Achieving these characteristics in large-scale programs requires the flexibility, innovation, and incentives that are inherent in markets. For some, this is a radical idea, but many middle- and upper-class families have long benefited from the power of markets for early childhood education by choosing the early learning centers that their children attend and by demanding results from those providers. This demand and supply system works. Why not give the same purchasing power to those of lesser means? Our idea is to use the strength of the market by empowering at-risk parents with resources to access high-quality early education. Qualified early education providers would compete for the scholarship children; parents would make the decision about where to enroll their children. This market-based approach is in contrast to the more conventional approach of either increasing the funding of existing programs or adding early childhood programs to the public school curriculum.

To establish a successful, long-term commitment to early childhood development, we have proposed a permanent scholarship fund for all families with at-risk children. Similar to endowments in higher education, earnings from an endowment for early childhood development would be used to provide scholarships for children in low-income families who aren’t able to afford a quality early childhood program. The scholarships would cover child tuition to qualified programs plus the cost of parent mentoring to ensure parental involvement. Scholarships would be outcomes-based, meaning that they would include incentives for achieving measurable progress toward the life and learning skills needed to succeed in school.

Parent mentoring would include parent education; information about available financial, health, and human-services resources; and guidance on selecting an early-childhood-development program. Research shows that reaching children with multiple risk factors as early as possible is essential; even age 3 may be too late. So we suggest that while scholarships would pay tuition for a child to attend an early-childhood-development program beginning at age 3, the parent-mentoring program could start as early as prenatal.

What would such a permanent scholarship fund cost? In Minnesota, we estimate that a one-time outlay of about $1.5 billion—about the cost of two professional sports stadiums—would create an endowment that could provide scholarships on an annual basis to the families of children in Minnesota living below poverty. With the endowment’s funds invested in corporate AAA bonds, earning about 6 percent to 7 percent per year, we estimate that $90 million in annual earnings would cover the costs of scholarships, pay for program monitoring and assessments, and supplement existing revenue sources as needed for early childhood screening and teacher-training reimbursement programs.

Compared with the billions of dollars spent each year on high-risk economic development schemes, this type of an investment in early childhood programs is a far better and more secure economic development tool. We are confident that early childhood development investments driven by a market-based approach that focuses on at-risk children, encourages parental involvement, produces measurable outcomes, and secures a long-term commitment will lower crime, create a stronger workforce, and yield a high public return.