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improve the early environments of the children sent to them.
At current levels of funding, incremental expenditures on schooling quality are unlikely to
be effective. Table 6 is based on estimates of the effect of schooling on earnings from a paper by
Card and Krueger that greatly influenced recent California efforts to reduce class size. It shows
the discounted economic returns (i.e., effects on discounted lifetime income) to decreasing pupil-
teacher ratios by 5, but keeping the quality of students the same. Reducing pupil-teacher ratios is
frequently advocated to raise the performance of schools. Taking the most favorable estimates
reported by these advocates of schooling programs produces a net negative return, even if the
social cost of taxation used to fund schooling is ignored and optimistic estimates of aggregate
productivity growth are used. The cost of reducing class size would be better spent on giving
children a savings account. These calculations are too optimistic because they understate the full
costs of the policy, which would entail substantial increases in teacher salaries to hire the new
teachers, or lower the quality of teachers hired into the school system.
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The celebrated Tennessee Star experiment produced, at best, marginal gains to
participants that did not survive a rigorous cost benefit analysis (see the discussions in Hanushek;
and Krueger). The widely discussed policy of improving schools by reducing pupil-teacher ratios
is unlikely to have substantial benefits unless the quality of the input going to school is improved
(see Carneiro and Heckman, 2003). The importance of family to the success in schools has been
known since the Coleman Report, but this wisdom has not yet found its way into policy.
Tuition and family income support for families of children in the college-going years are
often proposed. The basis for this policy recommendation is the empirical regularity that child
college-going rates are inversely related to family income in the college-going years. This
empirical association is treated as a causal relationship which should guide policy. Politicians
around the world campaign on this issue. The recent literature, surveyed in Carneiro and
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Heckman (2002, 2003), documents that at most 8% of American children are cash-constrained in
the college-going years. While a policy targeted to the cash-constrained has a high economic
return, it will not go far in promoting college attendance or reducing schooling among racial and
ethnic groups.
As Carneiro and Heckman (2003), Cunha, et al. and Cunha and Heckman (2007)
document, the real credit constraint facing children is not the lack of access to funds for tuition
and room and board in the college-going years. Rather, it is the inability of children to borrow
against future income to buy a parental environment that will allow them to fulfill their potential.
It is the accident of birth.
The empirical regularity that drives policy discussions has been misinterpreted. The
widely discussed correlation between parental income in the child’s college-going years and child
college participation arises only because it is lifetime resources that affect college readiness and
college-going, and family lifetime resources are strongly positively related to family resources
available to the adolescent in the college-going years.
Government job training programs and GED programs are second chance efforts designed
to remedy the deficits caused by early childhood and schooling neglect. The GED program does
not confer benefits to very many of its participants (Heckman and LaFontaine, 2007). Job
training programs targeted at the disadvantaged do not produce high rates of return and fail to lift
participants out of poverty (See the evidence in Heckman, LaLonde and Smith; and in Martin and
Grubb, 2001). At current levels of funding, these programs are largely ineffective and cannot
remedy the skill deficits accumulated over a lifetime of neglect.
Cunha and Heckman (2007), and Cunha, Heckman, and Schennach formalize the
technology of skill formation by families and estimate empirical models of dynamic skill
formation. They show that investments in children are complementary and that early investments
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improve the return on later investments. The self productivity of early investment warrants more
investment in the young.
Their analysis shows that the young receive highest returns to a dollar of investment.
Early skills breed later skills because early learning begets later learning. Both on theoretical and
empirical grounds, at current levels of funding, investment in the young is warranted. Returns are
highest for investments made at younger ages and remedial investments are often prohibitively
costly. Figure 12 summarizes their model and the findings of an entire literature. Returns for
disadvantaged children are highest for investments made at young ages. The optimal investment
profile declines with age. This pattern is true for all children. But more advantaged children
receive massive early investments from their parents that disadvantaged children do not receive.
Figure 12 shows the returns for human capital programs for the disadvantaged at current levels of
investment.
This literature does not suggest that no investments should be made in schooling or post-
school on-the-job training. They are major sources of skill formation. Indeed, the
complementarity or synergism between investments at early and later ages suggests that early
investment has to be complemented by later investment to be successful. Currie and Thomas
suggest that the effects of early investment will dissipate unless it is followed by later investment.
If early investments are made, the returns to later investments will rise. Investment in the
preschool years raises the productivity of schooling and post-school job training. Cunha and
Heckman (2006) show that adolescent remediation for the effects of adverse early environments
is very costly and Cunha and Heckman (2007) present an analytical synthesis of the literature.
However, the self-productivity of investment suggests that an optimal investment strategy
should focus investments in the early years compared to the later years. Carneiro and Heckman
(2003) argue as an empirical proposition in the U.S. that there is currently under-investment in
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