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The Productivity Argument for Investing in Young Children



 

 

James J. Heckman and Dimitriy V. Masterov  

 

 



 

 

 



 

Abstract 

This paper presents a productivity argument for investing in disadvantaged young 

children. For such investment, there is no equity-efficiency tradeoff. 

 

 



 

 

 



 

 

 



 

 

 



 

 

 



 James J. Heckman is the Henry B. Schultz Distinguished Service Professor in the Department of Economics, 

University of Chicago. 

Dimitriy V. Masterov is a graduate student in the Department of Economics, University of Michigan.  

This lecture was given as the T.W. Schultz Award Lecture at the Allied Social Sciences Association annual meeting, 

Chicago, January 5-7, 2007.  

This research was supported by a grant from NICHD (NIH R01-HD043411) and a grant from the Pew Charitable 

Trust and the Partnership for America’s Economic Success.  The web appendix for this paper can be downloaded 

from 

http://jenni.uchicago.edu/Invest/



 



 

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This paper presents the case for investing more in young American children who grow up 

in disadvantaged environments. Figure 1 graphs time series of alternative measures of the 

percentage of children in disadvantaged families. The percentage of children born into, or living 

in, nontraditional families has increased greatly in the last 30 years.

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  Approximately 25% of 



children are now born into single parent homes. While the percentages of children living in 

poverty and born into poor families have fallen recently, they are still high, especially among 

certain subgroups. 

Adverse environments place children at risk for social and economic failure. The accident 

of birth plays a powerful role in determining adult success.

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  Many have commented on this 



phenomenon, and most analyses have cast the issue of assisting children from disadvantaged 

families as a question of fairness or social justice. 

This paper makes a different argument. We argue that, on productivity grounds, it makes 

sense to invest in young children from disadvantaged environments. Substantial evidence shows 

that these children are more likely to commit crime, have out-of-wedlock births and drop out of 

school. Early interventions that partially remediate the effects of adverse environments can 

reverse some of the harm of disadvantage and have a high economic return. They benefit not only 

the children themselves, but also their children, as well as society at large. 

Investing in disadvantaged young children is a rare public policy with no equity-

efficiency tradeoff. It reduces the inequality associated with the accident of birth and at the same 

time raises the productivity of society at large. 

While a more rigorous analysis is necessary to obtain a better understanding of the effects 

of early intervention programs, their precise channels of influence, and their exact benefits and 

costs, the existing evidence is promising. An accumulating body of knowledge shows that early 




 

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childhood interventions for disadvantaged young children are more effective than interventions 



that come later in life. Because of the dynamic nature of the skill formation process, remediating 

the effects of early disadvantages at later ages is often prohibitively costly (see Carneiro, Cunha 

and Heckman and Cunha and Heckman, 2006).  Skill begets skill; learning begets learning. Early 

disadvantage, if left untreated, leads to academic and social difficulties in later years. Advantages 

accumulate; so do disadvantages. A large body of evidence shows that post-school remediation 

programs like public job training and General Educational Development (GED) certification 

cannot compensate for a childhood of neglect for most people. 

This evidence has dramatic consequences for the way we think about policy toward skill 

formation. Most current policies directed towards improving the skills of youth focus on schools 

as the locus of intervention. The No Child Left Behind Act uses mandates and punishments to 

encourage schools to remediate the educational deficits of disadvantaged children. School 

accountability schemes are used to motivate higher levels of achievement for children from 

disadvantaged environments. 

While these initiatives are well-intentioned, their premise is faulty. Schools work with 

what parents give them. The 1966 Coleman Report on inequality in school achievement clearly 

documented that the major factor explaining the variation in the academic performance of 

children across U.S. schools is the variation in parental environments—not the variation in per 

pupil expenditure across schools or pupil-teacher ratios. Successful schools build on the efforts of 

successful families. Failed schools deal in large part with children from dysfunctional families 

that do not provide the enriched home environments enjoyed by middle class and upper middle 

class children. Since failure in school is linked to so many social pathologies, each with 

substantial social and economic costs, a policy of equality of opportunity in access to home 

environments (or their substitutes) is also a one that promotes productivity in schools, the 




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