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Economic Development Analysis of the ECE Sector

In recent years, researchers and policy-makers have begun to recognize the important short- and long-term contributions the child care sector makes to the regional economy. Across the country, States and localities are using regional economic analyses to measure the short-term economic contributions of the child care (ECE) sector. Researchers are also studying the long-term economic effects of investment in ECE. The following is a sample of organizations and resources that have information about the economic impact of investment in ECE.

Overview of Current Research

The number of studies that provide an economic development analysis of the ECE sector has increased vastly in the past few years. While there are different methodological approaches to measuring the economic impact of investments in ECE, there is no question that researchers typically agree that investments in ECE are good for children, families, businesses, and the economy at large. The following publications provide an overview of key recent studies that make an economic development argument for investing in ECE.

  • “Why Early Care and Education Deserves as Much Attention, or More, than Prekindergarten Alone” (2007) in Applied Development Science (Vol. 11, No. 2), by Taryn W. Morrissey and Mildred E. Warner, reviews and synthesizes the research literature to examine whether the emphasis on prekindergarten is justified as economically superior to a comprehensive approach. The research authors compare impacts on the macrosystem (i.e. regional economy), exosystem (i.e. parents), and microsystem (i.e. children’s long-term human development), and argue that a holistic approach that includes comprehensive ECE services has economic returns as great as or greater than prekindergaten alone. Finally, the authors explore the conceptual barriers that have contributed to the narrow focus on prekindergarten and the policy implications of ignoring the broader ecological context. This resource is available on the Web at http://government.cce.cornell.edu/doc/pdf/ADS%20final%20ss.pdf.
  • Dollars and Sense: A Review of Economic Analyses of Pre-k (May 2007), by Albert Wat, Pre-K Now, provides a review of studies that analyze the economic costs and benefits of investing in prekindergarten programs, particularly focusing on the policy-relevant features of the studies. This resource is available on the Web at www.preknow.org/documents/DollarsandSense_May2007.pdf.
  • Early Childhood Education for All: A Wise Investment (April 2005), by Leslie J. Calman, Linda Tarr-Whelan, published by Legal Momentum, examines research and State experience on the critical importance of ECE for children, and also for taxpayers and those concerned with economic development. It also addresses new ways to meet the need for high-quality ECE. Investments in quality child care and early childhood education do more than pay significant returns to children; they also benefit taxpayers and enhance economic vitality. A number of mechanisms are identified through which public funding can finance child development services. This resource is available on the Web at www.legalmomentum.org/fi/pdf/FamilyInitiativeReport.pdf.
  • The New Economics of Preschool: New Findings, Methods and Strategies for Increasing Economic Investments in Early Care and Education, by Dana E. Friedman, for the Early Childhood Funders’ Collaborative, examines how economists are applying economic models to analyze the short- and long-term benefits of investment in ECE. The report states that economic studies of early care and education are gaining attention at all levels of government and within the business community. The report also states this body of research yields a range of benefits to the field of early care and education, including increased credibility and investment, better data collection, and new partnerships. This resource is available on the Web at www.councilofcollaboratives.org/files/FriedmanArticle.pdf.

Regional Economic Development Models

The current research based on regional economic models argues that the economic importance of child care has three components: its effect on the regional economy, its effect on parents (i.e. social infrastructure supporting workers and their employers), and its effect on children (i.e. investing in human development and education). The following is a sample of publications that measure the size and importance of ECE for regional economic development, including methodology guides and economic development strategies for making the case for investment in ECE.

  • Beyond the Comfort Zone: New Ideas for The Early Care And Education Industry, A Summary of the Kellogg Venture Grant Initiative (2006), by Louise Stoney, briefly profiles six grantees that were selected to receive $5,000 grants to encourage innovative ideas that link child care and economic development. This resource is available on the Web at www.earlychildhoodfinance.org/Publications/BeyondtheComfortZone.doc.
  • “Articulating the Economic Importance of Child Care for Community Development” (June 2006), a special issue of the Journal of the Community Development Society Vol. 37, No. 2, focuses on the economic significance of child care in three areas: the importance of child care for the long-term prospects of children, the importance of child care for parents as workers and child care purchasers, and the importance of the child care industry for regional economies. The articles included in the journal address a range of issues, including concerns about the conceptual and methodological approaches to regional economic modeling, child care choices and labor force participation, the impact of early education on children, and the core principles for more comprehensive policy. This resource is available on the Web at http://government.cce.cornell.edu/doc/reports/childcare/cds.asp.
  • Economic Development Strategies to Promote Quality Child Care (2005), by Mildred Warner, Shira Adriance, Nikita Barai, Jenna Hallas, Bjorn Markeson, Taryn Morrissey, and Wendy Soref, published by Cornell University, provides a conceptual economic development framework for child care and offers tools for practical application. The report presents a collection of economic development strategies for communities working to improve access to high-quality child care. This resource is available on the Web at http://government.cce.cornell.edu/doc/pdf/EconDevStrat.pdf.
  • Child Care and Parent Productivity: Making the Business Case (December 2004), by Karen Shellenback, published by Cornell University, is intended to help those interested in collecting data on the effectiveness of work/life initiatives. The purpose of collecting return on investment information is to cost-justify the value of current programs and new initiatives by estimating hidden costs and calculating the economic return or benefit to the organization. A five-step plan is described for human resource, organizational effectiveness, and work/life professionals to use to initiate data collection, including possible sources of data. An annotated bibliography is provided. This resource is available on the Web at http://government.cce.cornell.edu/doc/pdf/ChildCareParentProductivity.pdf.
  • Framing Child Care as Economic Development: Lessons from Early Studies (February 2004), by Louise Stoney, published by the Linking Economic Development and Child Care Research Project, Cornell University, reviews several recently completed child care economic impact studies and resource materials. This paper highlights the different approaches used by each research team and describes some of the challenges and opportunities of using an economic development framework for child care. This resource is available on the Web at http://government.cce.cornell.edu/doc/pdf/FramingChildCare.pdf.  For additional information email Mildred Warner at mew15@cornell.edu.
  • Measuring the Regional Economic Importance of Early Care and Education: The Cornell Methodology Guide (January 2004), by Rosaria Ribeiro and Mildred Warner, published by the Linking Economic Development and Child Care Research Project, Cornell University, is designed to help State and local teams measure the size of child care as an economic sector. The guide includes a basic set of tools for States and localities interested in conducting a regional economic analysis of child care. This resource is available on the Web at http://government.cce.cornell.edu/doc/html/MethodologyGuide.htm. For additional information, email Mildred Warner at mew15@cornell.edu.
  • Comparing Child Care Multipliers in the Regional Economy: Analysis from 50 States (2004), by Zhilin Liu, Rosaria Ribeiro, and Mildred Warner, presents regional linkages of the child care sector to the economy in all 50 States and in the District of Columbia based on data from 2000. The report is intended to be a technical resource for researchers using IMPLAN who want to understand how the model works with respect to child care. The report focuses on the regional effect, particularly the backward economic linkages measured by multipliers. Tables, charts, and maps illustrate how multiplier effects differ across States and across sectors in State economies. States with policies that promote quality child care have higher child care multipliers, suggesting that quality is associated with higher levels of regional spending by child care providers and workers. Investments in child care can have a positive long-term effect on the industry and a positive short-term effect on the broader State economy as well. This resource is available on the Web at http://government.cce.cornell.edu/doc/pdf/50States.pdf.
  • The National Economic Impacts of the Child Care Sector (Fall 2002), by the National Child Care Association, describes three significant contributions child care makes toward the national economy: (1) it directly supports more than 2.8 million jobs and generates $9 billion in tax revenues; (2) it grants parents the capability to work, enabling Americans to earn more than $100 billion annually and indirectly impacting the national economy by engendering more than $580 billion in total labor income, $69 billion in tax revenues, and supporting more than 15 million jobs; and (3) it’s economic benefits significantly exceed costs by reducing special education expenses, school drop-out rates, criminal activity, and poverty risks. Over the next decade, a continual increase in child care demands is expected. Therefore, an increase in child care accessibility and affordability is recommended to maintain the national economy’s health and prosperity. This resource is available on the Web at www.nccanet.org/NCCA%20Impact%20Study.pdf.
  • A Planning Guide: Linking Childcare to Economic Development (2001), by Alex Hildebrand and Stephanie Upp, National Economic Development and Law Center (NEDLC), offers policy-makers the necessary tools to combine their efforts with the expertise of the economic development field to promote further investment in ECE. It describes six major strategic impact areas that can have the greatest effect on economic development planning. The full report can be purchased from NEDLC by calling 510-251-2600 or visiting Web at www.nedlc.org/.
  • A Methodology Guide: Creating an Economic Impact Report for the Child Industry (2001), by Alex Hildebrand and Stephanie Upp, National Economic Development and Law Center (NEDLC), provides several guidelines for conducting a child care economic impact study. This report describes how to measure the size of the child care sector and its linkages to the broader economy. It also describes the steps and information needed to conduct an analysis of the child care demand and supply in the regional economy. The full report can be purchased from NEDLC by calling 510-251-2600 or visiting Web at www.nedlc.org/.

Long-term Benefits of Investments in ECE

Building on the results of longitudinal studies and brain research, economists have begun to measure the long-term economic importance of investments in ECE. Most of the current research on the long-term impact of investments in ECE focus on analyses of the economic benefits of providing a high-quality preschool education to all 3- and 4-year-old children in low-income families. Researchers argue that well-focused investments in ECE yield high public and private returns, including an increase in gross domestic product, reduction in poverty levels, and a more competitive skilled labor force. The following is a sample of research that analyzes the long-term economic value of investments in ECE.

  • Enriching Children, Enriching the Nation: Public Investment in High-Quality Kindergarten (May 2007), by Robert G. Lynch, published by Economic Policy Institute, compares the costs, fiscal, earnings, and reduced crime benefits of a hypothetical high-quality prekindergarten program for children from low-income families and a hypothetical high-quality universal prekindergarten program. The executive summary is available on the Web at www.epi.org/content.cfm/book_enriching#exec. State profiles are available on the Web at www.epi.org/books/enriching/states/all-states.pdf.
  • Early Intervention on a Large Scale (January 2007), by Arthur J. Rolnick and Rob Grunewald, published by the Preschool California, states that tax dollars spent on early childhood development provide high returns compared with investments in the public, and even private, sector. Some of these benefits are private gains for the children involved in the form of higher wages later in life. The authors argue that the broader economy also benefits because individuals who participate in high-quality early childhood development programs have greater skills than they otherwise would. A child’s quality of life and the contributions that child makes to society as an adult can be traced to his/her first years of life. Conversely, without support during these early years, a child is more likely to drop out of school, depend on welfare benefits, and commit crime. This resource is available on the Web at www.preschoolcalifornia.org/media_center/page.jsp?itemID=31322222.
  • Cost-Effective Investments in Children (January 2007), by Julia B. Isaacs, published by the Brookings Institution, identifies four areas of investment that merit expanded Federal funding. America’s future economic well-being will benefit from targeted investments to ensure that children have the skills to become tomorrow’s adult workers, caregivers, taxpayers, and citizens. Target areas for a package of proposals totaling approximately $25 billion annually and $133 billion over a 5-year period include the following: (1) high-quality ECE programs for 3- and 4-year-old children; (2) nurse home-visiting programs to promote sound prenatal care and healthy development of infants and toddlers; (3) school reform with an emphasis on programs in high-poverty elementary schools that improves the acquisition of basic skills for all students; and (4) programs that reduce the incidence of teen pregnancy. This resource is available on the Web at www3.brookings.edu/views/papers/200701isaacs.pdf.
  • Exceptional Returns: Economic, Fiscal, and Social Benefits of Investment in Early Childhood Development (October 2004), by Robert G. Lynch, published by the Economic Policy Institute, demonstrates that providing all 20 percent of the Nation’s 3- and 4-year-old children who live in poverty with a high-quality early childhood development program would have a substantial payoff for governments and taxpayers in the future. The study shows that by improving the skills of a large fraction of the U.S. workforce, programs for children in low-income families would raise the gross domestic product, reduce poverty, and strengthen U.S. global competitiveness. This resource is available on the Web at www.epinet.org/content.cfm/books_exceptional_returns.
  • The Productivity Argument for Investing in Young Children (October 2004), by James J. Heckman and Dimitriy V. Masterov, presents a case for investing in young American children who grow up in disadvantaged environments based on productivity grounds. Evidence from economics, sociology, and public policy suggests that children from disadvantaged families are likely to commit crime, have out-of-wedlock births, and drop out of school. Data show that early childhood interventions are more effective than interventions that come later in life and have a high economic return relative to other policies. This resource is available on the Web at http://jenni.uchicago.edu/Invest/FILES/dugger_2004-12-02_dvm.pdf.
  • Developmental Education: The Value of High Quality Preschool Investments as Economic Tools (2004), by the Committee for Economic Development, argues that ECE in offers greater potential returns and substantially less risk than subsidizing the entertainment infrastructure or creating cluster developments. ECE should be included by State and local leaders as a component of their economic development policy toolkit. The Committee for Economic Development encourages local development policy-makers to view early education as an economic development tool with lasting benefits. It is suggested that the real benefits of early education programs are not from making children smarter, but from nurturing children’s noncognitive skills, giving them social, emotional, and behavioral benefits that lead to success later in life. This resource is available on the Web at www.ced.org/docs/report/report_preschool_2004_developmental.pdf.
  • Early Childhood Development: Economic Development with a High Public Return (March 2003), by Art Rolnick and Rob Grunewald, published by Federal Reserve Bank of Minneapolis, presents the economic case for public funding of early childhood development.  It cites studies that document well-focused investments in early childhood development yielding high public and private returns. The authors propose that the Minnesota State government should create the Minnesota Foundation for Early Childhood Development to fill the gap between the funds currently available for early childhood family education, school readiness, and Head Start and the amount necessary to fully fund a high-quality program for all 3- and 4-year-old children living in poverty in Minnesota. This resource is available on the Web at http://minneapolisfed.org/research/studies/earlychild/earlychild.pdf. 
  • The Economics of Education: Public Benefits of High-Quality Preschool Education for Low-Income Children (2003), by Jerrold Oppenheim and Theo MacGregor, developed for Entergy by Building Communities for Change, articulates and analyzes the economic benefits of providing a high-quality preschool education to all 3- and 4-year-olds children in low-income families in the United States, and especially in the Entergy States of Arkansas, Louisiana, Mississippi, and Texas. This resource is available on the Web at www.state.ar.us/childcare/education_book.pdf.
  • How Does High Quality Child Care Benefit Business and the Local Economy? (2003), by the Economic Opportunity Institute, suggests that high-quality care for young children directly affects the productivity of both the current and future workforce. Access to affordable, quality child care provides businesses with the following benefits: (1) lower employee turnover, (2) reduced tardiness and absenteeism, (3) higher employee morale and commitment, (4) lower training and recruitment costs, and (5) increased employee productivity and performance. Brain development research and longitudinal studies of high-quality preschool programs confirm the importance of children’s early learning and care experiences to their future academic success and employee productivity. Early education is the most cost-effective way to decrease the number of unskilled adults in the future. A report issued by the Committee for Economic Development cited research showing that when children are better educated, they are more productive as adults, likely to be healthier, pay more taxes, and are less likely to require welfare and other public assistance. This resource is available on the Web at www.eoionline.org/ECEChildcareEconomyBenefits.pdf.
  • The Economic Rationale for Investing in Children: A Focus on Child Care (Final Report) (September 2001), by Diane Paulsell, for Mathematica Policy Research, Inc., summarizes a conference convened by the Office of the Assistant Secretary for Planning and Evaluation to engage a multidisciplinary group of economists, developmental psychologists, child care researchers, and policy analysts in a dialogue about the rationale for public investment in quality child care. This resource is available on the Web at www.mathematica-mpr.com/publications/PDFs/econrationale.pdf. For additional information, call Mathematica Policy Research, Inc., at 609-799-3535.

Economic impact studies conducted by States and Counties

  • Summary of Child Care Economic Impact Studies, by the Linking Economic Development and Child Care Project, Cornell University, is a Web database of State and local studies about the economic impact of child care. This database includes information about the lead agency conducting the study, date completed, contact person, links to available resource materials, and a link to the project Web site. This resource is available on the Web at http://government.cce.cornell.edu/?/doc/reports/childcare/matrix.asp. For additional information, email Mildred Warner at mew15@cornell.edu.
  • NCCIC’s Library has resources about the economic impact of child care. Visit the Web at http://nccic.acf.hhs.gov/index.cfm?do=oll.search, and select “economic impact of child care” with the Quick Search function.

National Organizations

  • Alliance on Early Childhood Finance
    World Wide Web: www.earlychildhoodfinance.org

    The Alliance on Early Childhood Finance is dedicated to seeking more rational financing of early care and education in the United States through inquiry, analysis, and communication among early care and education policy activists.  Its Web site serves as a link to new resources, ideas, meetings, and online discussions about a variety of topics related to early care and education finance.

  • Committee for Economic Development (CED)
    202-296-5860
    World Wide Web: www.ced.org/

    CED is an independent, nonpartisan organization of business and education leaders dedicated to policy research on the major economic and social issues of our time and the implementation of its recommendations by the public and private sectors.

  • Department of City and Regional Planning, Cornell University
    Linking Economic Development and Child Care Research Project
    607-255-6816
    World Wide Web: http://government.cce.cornell.edu/doc/reports/childcare/

    The Linking Economic Development and Child Care Research Project is funded by the Child Care Bureau, Office of Family Assistance, Administration for Children and Families, U.S. Department of Health and Human Services; the U.S. Department of Agriculture Hatch research program administered by Cornell Agricultural Experiment Station; the Rauch Foundation; and the Kellogg Foundation. The research project seeks to build a new policy framework for child care that addresses the sector’s importance from an economic development perspective and to develop a better theoretical and empirical model to analyze the economic contributions of the child care sector.

  • Federal Reserve Bank of Minneapolis
    612-204-5000
    World Wide Web: www.minneapolisfed.org

    The Early Childhood Development section of the Federal Reserve Bank of Minneapolis Web site provides links to several resources and publications with information about the economics of early childhood development. This resource is available on the Web at www.minneapolisfed.org/research/studies/earlychild/.

  • The National Economic Development and Law Center (NEDLC)
    510-251-2600
    World Wide Web: www.nedlc.org

    NEDLC is a nonprofit organization that specializes in community economic development. The center views child care as a key contributor to building sustainable local economies. NEDLC has developed a model of economic analyses of the ECE industry that demonstrates the link between child care and economic development, and provides child care advocates empirical evidence on child care’s contribution to the economy. Additional information is available on the Web at www.nedlc.org/Programs/divisions_cyf_childcare_impact.htm.

Updated July 2007

 
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