National Conference of State Legislatures

New Research: Early Education as Economic Investment

By Steffanie Clothier and Julie Poppe

Recent research has focused on early education as an investment.  NCSL has prepared this summary of the latest economic research examining early education initiatives as public investments.  Many policymakers have considered early education initiatives as a school readiness strategy or as a way to close the achievement gap.  Now, economic experts are offering another reason: mounting evidence shows that investments in early education may be considered as an economic development strategy.  

This summary brief highlights three reports: the first from Art Rolnick, Senior Vice President and Director of Research at the Minneapolis Federal Reserve Bank; the second from James Heckman, Nobel Prize winner in economics from the University of Chicago; and the latest report from the High/Scope Educational Research Foundation on the longitudinal study of the Perry Preschool Program.  These reports characterize the economics of investing in early education by examining state economic subsidies, skill development for individuals in the broader economic picture, and specific new findings from a path-breaking early education program. 

Return on Investment

Art Rolnick and Rob Grunewald of the Minneapolis Federal Reserve Bank published a paper examining the returns on investment of early education in Minnesota.  The findings have had such broad appeal that the authors have been invited around the country to discuss their findings.  In Early Childhood Development with a High Public Return, early education investments are compared to other kinds of state investments, with the conclusion that early education investments yield a return that far exceeds the return on most public projects that are considered economic development.  The report raises issues relevant to most states, including how to build and maintain a viable state economy.  The authors highlight the role of state subsidies while drawing on state experiences where subsidies failed to create real economic gains.  Though subsidies to education have been longstanding, the authors argue that funding should be directed to early education because of the long-term effects. 

Rate of Return: The report considered several studies of model programs and, when considering the Perry Preschool program, found a return on investment of 16 percent, with 80 percent of the benefits going to the general public.  The data about model programs—such as Perry Preschool

yielding more than $8 for every $1 invested—is one way of describing the investment.  Rolnick and Grunewald’s use of the rate of return clearly shows the benefits of the investment compared to other investments. 

The authors recommend creating a foundation endowment to fill the gap in current services in Minnesota by fully funding a high-quality program for all 3- and 4-year-old children in poverty.   The endowment would generate enough operating funds for the early education initiative, which would include investments in quality improvements.

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Building Human Capital

Nobel Prize winner James Heckman has turned his focus to early education as well.  Heckman's work is devoted to the development of a scientific basis for economic policy evaluation.  His career has included developing models to study unemployment, wage growth and skill formation.  Heckman's report, The Productivity Argument for Investing in Young Children, describes how individual productivity can be fostered by investments in young children, particularly children in poverty or other adverse circumstances. 

The report’s findings are based on an analysis of the impact of current workforce conditions, workforce skills, the impact of baby boomer retirements, crime and family environments.  For example, the report finds that America's workforce is not gaining in quality or productivity, but rather seeing slower growth.  He argues that if this trend continues, there will be fewer educated individuals in the workforce and lower productivity than in previous periods.  Key findings of the report include:

  • Cognitive and noncognitive abilities are important for a productive workforce, and gaps that emerge early are difficult to change. 
  • “Skill begets skill and learning begets more learning.”  Because skills are accumulated, starting early and over time, investing in young children is an investment in future productivity and public safety.
  • Family environments are important in determining education and skills.  Growing numbers of children face adverse environments that restrict the development of these skills.  Early education and other early interventions such as home visits can mitigate the effects of poor family environments.  Key workforce skills such as motivation, persistence and self-control are developed early.  Heckman concludes that K-12 schooling comes too late, and other remedies are prohibitively costly as well (e.g., job training programs and second-chance GED programs). (See Figure 1.)


Figure 1.  Rates of Return

Source: Heckman and Masterov, The Productivity Argument for Investing in Young Children, October 2004.   


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Perry Preschool at Age 40

In November 2004, the High/Scope Educational Foundation released the latest findings from the Perry Preschool longitudinal study.  The research on the Perry Preschool model program has long been a key foundation for the long-term benefits of early education for children from disadvantaged families.  The High/Scope Perry Preschool study started in 1962 with 123 young African-American children living in poverty in Ypsilanti, Michigan, and who were assessed to be at high risk of school failure.  The Perry preschool program design included teachers who were well-qualified; a teacher served no more than eight children at a time; parents were visited as a component of the program; and classes operated daily.  The researchers randomly assigned 58 of the children to this high-quality setting, and the rest received no preschool program.   Researchers have compared children from the Perry preschool program with the comparison group at ages 14, 15, 19, 27, and now at age 40. 

The latest report found continuing positive long-term effects of high-quality early childhood care and education on low-income 3- and 4-year-olds.  Overall, the study recently documented a return to society of more than $17 for every dollar invested in the early care and education program, primarily because of the large continuing effect on the reduction of male crime.  These new figures are a dramatic increase in long-term returns.  Highlights from the study’s major findings include:

  • Economic/Workforce:  More of the group who received high-quality early education than the non-program group were employed at age 40 (76 percent vs. 62 percent).
  • Education:  More of the group who received high-quality early education, particularly females, graduated from high school than the non-program group.
  • Crime Prevention:  The group who received high-quality early education had significantly fewer arrests than the non-program group (36 percent vs. 55 percent were arrested five times or more).

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These latest studies provide examples of an additional approach to thinking about state and federal funding investments.  NCSL provides ongoing analysis and information as studies in this area are released.  NCSL can provide analysis and highlights of recent research and can connect policymakers with experts in the field.  Our staff welcome suggestions and comments about the research needs of policymakers.  Please contact NCSL’s Child Care and Early Education Project with questions or feedback. 

1. Art Rolnick and Rob Grunewald, Early Childhood Development: Economic Development with a High Public Return, March 2003; James J. Heckman and Dimitriy V. Masterov, The Productivity Argument for Investing in Young Children, October 2004; High/Scope Educational Research Foundation, The High/Scope Perry Preschool Study Through Age 40, November 2004.