Vijay K. Mathur
On Nov. 27-28, 2021, I published a guest commentary in this newspaper where I argued for investment in children for human capital growth. Human capital is one of the most productive inputs in the future growth of the economy. I was especially concerned about the U.S. Senate’s refusal to consider President Biden’s proposal for more federal expenditures on childcare, early childhood education and health, with special emphasis on economically disadvantaged and low-income families. I am concerned that evidence shows that politicians and many policy makers pay more attention to investment in older people than in children. I am not arguing that the federal government should ignore older people’s needs. However, lack of investment in children is not going to benefit Americans in the future. Human capital is a source of innovation, technological change and growth of the economy.
In May 2021, Administration for Community Living (www.acl.gov) reported that the 65 years of age and older population will increase from 16% in 2019 to 21.6% in 2040. If the current spending rate continues, an increasing share of gross domestic product (GDP) will go to the older population. Howard Gleckman reports in Forbes (Feb. 1, 2019) that in 10 years half of the federal government budget (excluding interest on debt) will be spent on older people, an unsustainable scenario. A reasonable way to think is to efficiently allocate federal spending to older residents to lighten their children’s burden and to children to assure future growth. It will require rethinking of tax and subsidy policies to sustain Social Security and Medicare trust funds and to save on resources for investment in children, a topic requiring detailed investigation.
A May 2019 report, “Kids Care,” by Urban Institute states, “Early childhood is a critical period of development, laying the foundation for lifelong skills, behaviors, and health outcomes.” From 2011 to 2017, per capita federal expenditures on infants and toddlers had gone down by 5%. In 2020, 7% of the federal budget was allocated for spending in children 18 years old and under and 33% on adults for Medicare, Social Security and Medicaid combined. The emphasis represents misallocation of federal resources that undermines efficiency and thus economic growth.
The country is attempting to improve the skills of high school students by starting STEM programs, as well as programs to improve the skills of adults, to prepare them for the labor force in the technology-oriented economy. But this effort still ignores a significant investment commitment in children, especially in low-income and poor families. Growth theorists find that even after accounting for inputs of labor, capital, materials and human capital in production, there is residual output that is unaccounted for. The theorists account that residual output to technology. However, it is human capital that is one of the most significant generators of innovations and technical change. If we only concentrate on the short-term investments in education, improving skills and talents, and ignore the future accumulation of human capital, the standard of living of future generations of Americans will deteriorate.
Investment in children in disadvantaged families not only builds their human capital but also increases labor force participation of parents in the job market. This creates more output and growth in the current period and helps build parents’ skills that affect their wage growth and poverty status. Lack of childcare created hardships for such families during COVID-19, causing them to drop out of the labor force. The labor market still has not recovered from labor shortages in many businesses requiring personal services. Federal spending provided some economic relief to many such families.
Since the schools were closed during the spread of the pandemic, children’s education, especially in low-income and poor families, suffered. There is a concern among many educators and policy makers that this loss of education will affect the future educational performance of those children who were not able to participate in distant learning. Researchers Eric Hanushek and Ludger Woessman find that the loss of learning due to school closings during the COVID pandemic is expected to cost $14.2 trillion in current dollars. A paper by R. Akee et al. in American Economic Review (March 2018) argues that parental resources affect “children’s test scores, physical health in childhood, long-term educational attainment, and social outcomes.”
Studies show that investments in early childhood in disadvantaged families has a very significant payoff in the future achievements of children in education and success in the labor market.
