Education is the bedrock of our economy. On an individual scale, it is largely understood that receiving a high-quality education is imperative to one’s future success; today, the college admissions process is becoming increasingly competitive for both undergraduate and graduate programs, as students clamor not to ‘fall behind’ their peers in terms of economic opportunity. We can also see the benefits of a quality education on a larger, societal scale; a global increase in the quality of education will over time trickle into the workforce, resulting in increased productivity, innovation, and economic development.
But although the importance of education—which is so directly and plainly connected to the economic prosperity of a society—is realized on an individual level, there is little private investment in earlier education.
Teaching positions in early education programs are consistently understaffed and underpaid, a seeming discrepancy between the social value of education and its economic compensation. What is the cause of this discrepancy?
In order to understand how the education sector is undervalued in our economic system, it is important to understand the mechanism that controls where private investments are allocated.
The efficacy of our economic system comes from the principle that investments that appreciate in value, resulting in a benefit for investors, will also drive economic development that benefits the public. Over time, the most productive investments will attract more investors due to better profit margins, which in turn drives more development—a positive feedback cycle that tends to favor patterns of investment in higher-benefit, higher-profit sectors.
By this mechanism, our economy drives development in sectors that are most efficient in turning funding into results. For example, investments in healthcare manifest quickly in higher life expectancies and overall health; investments in public transportation lead to less household spending and a betterment of overall accessibility; investments in technology are turned into the creation of new products and the betterment of old ones that increase worker efficiency in many different fields of work. All of these changes aggregate to ultimately result in nationwide productivity and prosperity. This public benefit from investment is coupled with profit margins for investors–its driving force.
So then what seems to be the issue? If the profit motive is what it takes to spur on economic activities that benefit the public, why do we see sectors such as education receive inadequate funding?
The issue is that the profit motive simply does not work to encourage the slow-growth, dispersed benefits that an improvement to education will bring.
Investor benefit is a fairly good proxy measure of development, but it has some key pitfalls in the realm of early education.
The first issue is a lack of immediacy in seeing results. The ‘break-even’ point of early-childhood education program investments is delayed compared to other sectors, which see improvements almost instantaneously. This ‘delay’ from when preschool-age children benefit from investments to when they graduate and enter the workforce makes it difficult to keep investors’ interest. Higher education programs don’t seem to have the same issue. This is because of the immediacy of returns in these projects, which is attractive to investors. But where do these highly educated, highly specialized academics come from? As many of the students attending these institutions are aware, even admission into a quality institution is laborious, and selectivity only increases with time. The distinguishing factor between the ‘accepted’ and ‘rejected’ piles is the quality of earlier education.
Another limiting factor is the manner in which academic investment is dispersed. Whereas in funding higher education research projects it is clear where the investors’ money is going, the ultimate destination of early education investments cannot be controlled or tracked. This makes sense: increasing the quality of education will not have the same predictable outcome for every child. Instead, investment in education gives students more opportunities for success in a diverse array of fields, from which they can choose their own trajectory. For investors, this means the benefit of the initial investment is scattered.
Finally, investors don’t buy into early education because not all of its benefits can be measured. Ultimately, the reason we as individuals value education is not solely due to its role in economic growth. While education is key to a productive economy, non-economic outcomes of education such as literacy, critical thinking, and even simply a love of learning should also be considered when deciding where funding is allocated, as these are outcomes that are deeply valued by society and cannot be as easily measured as economic growth.
Despite these three factors that deter potential private investors, investments in early education have proven to provide reliable benefits for investors and society alike.
James J. Heckman, a Nobel Laureate in Economics who has written extensively on ROI in early childhood, calculates that early education programs of high quality can yield up to a 13% annual return on investment. Heckman’s work also strongly emphasizes that the greatest returns come from the earliest investments, as demonstrated by his “Heckman Curve”:
This is especially true for low-income children, for whom preschool is already too late to start investing. Results from these early, zero-to-five programs show permanent benefits for the recipients: one study details the quantitative increase in the number of high school/college graduates, with mean years of schooling increasing by an estimated ~2 years. Other positive results from the study include decreases in criminal activity, higher employment rates, better overall health and a significant decrease in healthcare expenditures.
These outcomes not only improve living standards for the recipients of investments, but also reduce net expenditures that would occur later in life—such as welfare programs, healthcare coverage, and the cost of crime. These cost cuts reduce spending for the individual recipients of the programs, as well as for the government and greater society.
