Many Happy Returns

Early Childhood Programs Entail Costs, but the Paybacks Could Be Substantial

Universal Preschool

Preschool is an increasingly common experience for children in the United States. In 2001, 43 percent of 3-year-olds and 66 percent of 4-year-olds were enrolled in some form of preschool nationwide. These percentages are three times as high for 3-year-olds and twice as high for 4-year-olds as they were in 1970.

However, there are wide variations in enrollment rates based on race, ethnicity, family income, and parental education. One of the sharpest contrasts is by mothers’ education. Among 3- to 5-year-olds whose mothers have not finished high school, just 38 percent are enrolled in preschool, compared with 70 percent of those whose mothers have at least a college degree (see Figure 1).

Figure 1 — National Preschool Enrollment Rates Are Lowest for Latinos, the Poor, and Those Whose Mothers Have Not Finished High School

SOURCE: National Center for Education Statistics, The Condition of Education 2002, Washington, D.C.: U.S. Government Printing Office, 2002. NOTE: Estimates are based on children for whom it was reported that they had not yet entered kindergarten. Children from racial/ethnic groups other than white, black, or Latino are included in the totals but are not shown separately. Children without a mother in the home are excluded from tabulations of mothers’ education.

Figure 2 — Every $1 California Spends on Universal Preschool Would Yield Roughly $2 to $4 in Benefits to the State

SOURCE: The Economics of Investing in Universal Preschool Education in California, 2005. NOTE: Dollar amounts are per child in 2003 U.S. dollars for California society as a whole and are the present value of amounts over time. Future values are discounted to age 3 of the participating child, using a 3-percent annual real discount rate.

There is growing interest in California and across the country in providing universal access to voluntary public preschool (that is, access for all children in a predetermined age range whose parents wish them to attend). Californians will likely have an opportunity in June 2006 to vote on a ballot initiative that would mandate and fund universal preschool statewide.

In estimating the costs and benefits of such an effort, we assumed a high level of program quality statewide, meaning the program would meet nationally recognized standards for class size, staff ratio, staff qualifications, and other features associated with better outcomes for children. We assumed that a part-day, voluntary program would enroll 70 percent of the state’s 4-year-olds.

We found that universal preschool would cost $5,700 per child, but the incremental cost would be $4,300 after accounting for current spending for public preschool programs. In comparison, the investment would generate returns to California society — the public sector, participants, and other members of society — of about $11,400 per enrolled child, for a net benefit of more than $7,000 per child (see the middle set of bars in Figure 2). This best estimate projects a return of $2.62 for every dollar invested, or an annual rate of return of about 10 percent if spread over a 60-year horizon.

Our estimates remain sensitive to assumptions about the benefits of current preschool programs and the distribution of benefits among more-advantaged and less-advantaged children. When we considered a range of assumptions, from more to less conservative, the return per dollar invested ranged from about $2 to more than $4. (See the left and right sets of bars in Figure 2.)

Under our baseline assumptions, the net benefits would be negative for California state and local governments, which we assumed would bear the full costs of the program. However, our projections probably underestimate government savings, because we did not account for reduced use of social welfare benefits and other such savings. Moreover, some would argue that investments in public education programs can be justified as long as the returns to society as a whole are positive, even if the savings to government do not fully cover the program costs.

The social benefits are likely understated as well. We had insufficient data to add some potential benefits, such as the improved health and well-being of children and the reduced pain and suffering borne by victims of child abuse, child neglect, and crime. The best available estimates of the “intangible” costs of these kinds of pain and suffering alone would boost universal preschool’s net benefits for California society by nearly 50 percent, from about $7,000 per child to $10,400 per child.

Our analysis does not incorporate some other potential benefits, either. These include near-term benefits for California businesses (in terms of increased labor force recruitment, labor force participation rates, and workforce performance) and longer-term benefits for the state (in terms of increased economic growth, heightened competitiveness, and greater economic and social equality).

A program targeted only at disadvantaged children would be less costly and generate more benefits per dollar expended. However, it would also incur the administrative costs of determining eligibility. It might risk stigmatizing participants. And it would unavoidably miss some children in families who could benefit but would not meet the eligibility criteria or would be confused about the eligibility rules.

Two further lines of reasoning lend support to universal preschool programs:

• If viewed as an economic development strategy (because of its long-term economic benefits), universal preschool compares favorably with other development strategies, including business assistance, workforce education and training, and expansion of local infrastructure. Many of the anticipated returns from such alternatives are illusory; they “generate” jobs that, in reality, would have been created anyway or might simply draw away jobs that would have been created in neighboring communities.
• Public-sector investment in K–12 education has been justified as a critical investment in human capital with long-term benefits. Notably, K–12 education is a universal program. The same argument could be made on behalf of preschool. Public funds would be used to make an investment that would yield a long-term payoff for society, whether in the form of lower government outlays or a higher standard of living.