Microsoft Word Heckman final 2007-03-22c jsb doc



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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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