The Preschool Payoff

Getting disadvantaged children into preschool can affect their future earnings

By + More

While preschool, on the surface, might seem superfluous, filled with running around on the playground and imaginary play, it actually has a powerful and lasting effect on children’s future earnings. The effects are so profound that a free preschool program for disadvantaged children would help reduce inequality and increase overall earnings (and tax revenues).

That’s the conclusion of a paper from Nobel Laureate James Heckman, an economics professor at the University of Chicago, and Lakshmi Raut, an economist at the Social Security Administration. “Preschool investment significantly boosts cognitive and non-cognitive skills, which enhance earnings and school outcomes,” they write in a working paper from the National Bureau of Economic Research.

[In Pictures: 10 Smart Ways to Improve Your Budget.]

Preschool, Heckman and Lakshmi find, launches a long chain of related events that eventually lead to the working world. Children who come from low socioeconomic backgrounds tend to be less prepared to succeed at school. That, in turn, hurts their chances of completing high school and going on to higher education. They then are less prepared to succeed in the labor market. Preschool can help change all of that.

In addition to boosting IQ and schooling levels, Heckman and Lakshmi show that preschool appears to have a positive impact on children’s socialization skills, which helps them to get further in their schooling and also to succeed in their future working lives. Children from lower socioeconomic backgrounds who live in “poor home environments” stand to benefit the most, since they are not getting the chance to develop their cognitive and non-cognitive skills as much at home.

Other recent research also underscores the role of the home environment on education. Stanford University psychologist Anne Fernald published a paper showing that even one-and-a-half year-olds from wealthier families acquire more language compared to children of the same age from low-income families.

These findings don’t necessarily mean parents should scramble to get their children into top-rated preschools. The authors emphasize that their research is based on the preschool programs available in the 1970s, which were generally of lower quality than preschool programs today. This current paper does not address what type of preschool, or just what it is about preschool, that provides the benefit.

[Read: Why New Parents Can't Get Credit.]

The preschoolers who have the most to gain from such programs are those who come from lower socioeconomic status backgrounds, which is why Heckman advocates for high-quality preschools for disadvantaged children. Last month, he wrote in The New York Times, “Some kids win the lottery at birth, far too many don’t — and most people have a hard time catching up over the rest of their lives. Children raised in disadvantaged environments are not only much less likely to succeed in school or in society, but they are also much less likely to be healthy adults.”

Heckman and Lakshmi note that few parents of poor socioeconomic status (defined as having earnings below 70 percent of average earnings) opt to invest in their children’s preschool education. As a result, the cost of providing preschool falls on taxpayers, an expense that the authors argue is a worthy investment. “If preschool is publicly provided for the children of poor [socioeconomic status], it will have many economic benefits: It will increase social mobility, it will reduce income inequality, it will improve college enrollment rate, it will improve the community or criminal behavior, and it will also bring higher tax revenues because more workers will be earning higher wages,” they write.

[Read: The Best Money Tips for New Graduates.]

The authors calculate that providing free preschool will increase college enrollment as well as boost lifetime earnings and reduce the income gap. The impact would likely be even greater than they estimate, Heckman and Lakshmi say, since their research is based on those older, lower-quality preschool programs. Exactly how to go about providing free preschool, such as through a voucher system or via the public school system, was not addressed by the paper.

As Heckman concluded in his Times piece, “Early investment in the lives of disadvantaged children will help reduce inequality, in both the short and the long run.”