WHY EARLY EDUCATION?

Universal early education will have two significant benefits. First, many Americans with prekindergarten children want to combine family with paid work.¹ But because good-quality out-of-home care can be prohibitively expensive, too many parents settle for care that is mediocre or poor.² Others simply forgo employment.³

Denmark and Sweden offer a good model. Beginning in the 1960s, these countries introduced and then steadily expanded paid parental leave and publicly-funded childcare and preschool. Today, Danish and Swedish parents can take a paid year off work following the birth of a child. After that, parents can put the child in a public or licensed private early education center. The quality tends to be high, as early education teachers get training and pay comparable to elementary school teachers. Parents pay a fee, but the cost is capped at less than 10% of a household’s income.⁴

We can see the impact in employment patterns. Among mothers whose youngest child is six to sixteen years old, and thus eligible for free K-12 schooling, the employment rate in the U.S. is just a few percentage points lower than in Denmark and Sweden. Among mothers with a child younger than six, it’s 15 percentage points lower.⁵

Second, evidence increasingly suggests that good-quality universal early education helps to equalize opportunity by improving the capabilities of children from less advantaged homes.

Americans are strong believers in equality of opportunity. More than 90% of us think “our society should do what is necessary to make sure that everyone has an equal opportunity to succeed.”⁶ But family conditions are a huge impediment. Some children have parents who read to them, instill helpful traits such as self-control and persistence, shield them from stress and physical harm, expose them to new information and learning opportunities, assist them with homework, provide connections that help them get out of trouble or into a good job, remain in a stable relationship throughout the childhood years, and so on. Other children are less fortunate.⁷ As a result, whereas an American born into a family in the top fifth of incomes has roughly an 80% chance of ending up in the middle fifth or higher in adulthood, an American born into the bottom fifth has only a 30% chance of reaching the middle fifth or higher.⁸

Schools help to offset the massive differences in capabilities caused by families. Children from poor homes tend to have much lower measurable skills than children from affluent homes at kindergarten entry. Given the huge variation in home and neighborhood circumstances, we would expect that gap to widen throughout childhood. But it doesn’t; it’s about the same size at the end of high school.⁹ This tells us that schools have an equalizing effect. Also, during summer vacations, when children are out of school, those from lower-income families tend to fall farther behind.¹⁰

If school began earlier in life, we could reduce some of the disparity that exists when children arrive for kindergarten. Indeed, some analysts conclude that the impact of schooling is larger before kindergarten than after.¹¹

The effects of three high-quality early education programs — the Perry Preschool Program in Michigan in the 1960s, the Abecedarian Project in North Carolina in the 1970s, and the Child-Parent Center Education Program in Chicago in the 1970s — have been tracked into early adulthood or beyond. Each program appears to have had positive effects for low-income children that persist throughout the life course. For the Perry and Chicago Programs, gains in test scores faded away but there were long-term gains in labor market success and other outcomes. The same appears to be true for Head Start. This suggests that the key improvement is in noncognitive skills more than in cognitive ability. On the other hand, the Abecedarian Project yielded better long-term behavioral outcomes along with sustained gains in test scores. A natural experiment in Denmark also found lasting test-score gains. So early education’s benefits for children from less advantaged homes may come via both cognitive and noncognitive skills.¹²

Skeptics point to findings of little apparent impact of existing universal preschool programs for four-year-olds in Oklahoma and Georgia. But these programs are too new to assess long-run effects.¹³

The Nordic countries, particularly Denmark and Sweden, have had universal early education systems in place for a generation. This may help account for why opportunity is more equal — children’s cognitive abilities, likelihood of completing high school and college, and labor market success depend less on their parents’ education, income, and parenting practices — in these countries than in others.¹⁴

In sum, good-quality universal early education will improve work-family balance and very likely will reduce inequality of opportunity.

A possible third benefit is faster economic growth. If universal early education increases employment by mothers and improves the capabilities of Americans who grow up in less advantaged homes, it may boost the economy’s growth rate. But I’m much less confident about this outcome than the other two. Though the Nordic countries have had universal early education for several decades, their economies don’t grow more rapidly now than they used to. Nor do they (apart from oil-rich Norway) grow faster than other affluent nations. If early education does increase economic growth, its impact probably is small enough that it’s overshadowed by the myriad other determinants of national growth rates.¹⁵

WHY PUBLIC?

So the potential benefit from early education is substantial. Why does government need to step in? Can’t the market handle this?

No, not well enough. A good early education system will combine three features: accessibility, affordability, and quality. For Americans able and willing to pay a lot for childcare, our current system typically delivers all three. But for those with low to moderate incomes, getting access to affordable care too often means sacrificing quality.¹⁶ A universal system with public funding and some direct public provision would change this. It would ensure good-quality care to everyone at an affordable price.

But let’s break this down. Should government pay for early education? Yes, to make it affordable for all. That doesn’t mean it should be free, as I’ll explain in a moment, but it does mean taxpayers should bear a significant portion of the cost.

Here government already is involved. The federal government funds Head Start, some special education services, and tax breaks for childcare. Some state governments fund preschool for four-year-olds and subsidize childcare for poor families. Yet this is nowhere near sufficient to ensure that everyone has access to good-quality care and preschool.

Do we also need government to provide early education? Yes. That’s the only way to guarantee universal access to preschool and care that’s above an acceptable quality threshold. But we don’t need government to be the sole provider. Denmark and Sweden allow private providers, as long as they meet quality standards. In many districts across America we allow private providers for publicly-funded K-12 schooling (charter schools). We allow private doctors and hospitals to provide medical care for Medicare and Medicaid recipients. We should do the same for early education.

What’s the ideal mix? I don’t know. Maybe it’s 25% of kids in public early education centers, or perhaps it’s 75%. This depends largely on how many private providers can combine good quality with a reasonable rate of return.

WHY UNIVERSAL?

Why should early education be universal? Why not just expand Head Start a bit?

Three reasons. First, it isn’t just low-income parents who struggle to find good-quality care that’s affordable. Middle-class parents do too. Second, family structure and parents’ traits and behaviors are key sources of disadvantage, and they don’t overlap perfectly with family income. If we target low-income households, we’ll miss many children who need help. Third, development of cognitive and especially noncognitive skills is aided by peer interaction. Children from less advantaged homes gain by mixing with kids from middle-class homes, which doesn’t happen in a program that exclusively serves the poor.¹⁷

WHY NOT BEGIN AT BIRTH?

If early education is so great, why not encourage parents to start right after birth? The reason is that research suggests children tend to fare best staying with a parent during the first year of life.¹⁸

So along with facilitating early education for kids aged one to four, we should make it possible for more parents to stay home with their children during the first year.¹⁹ Right now, we require that firms with 50 or more employees grant 12 weeks of unpaid leave to new parents.²⁰ Some large firms offer paid leave, but that’s entirely voluntary. Here too, the Danes and Swedes have it about right. They provide tax-funded paid parental leave for roughly one year. A portion is use-it-or-lose-it for the father; if he chooses not to take any leave, the couple loses that time. Otherwise they are free to split the leave however they like.

HOW MUCH SHOULD PARENTS PAY FOR EARLY EDUCATION?

American parents with a child younger than age five in out-of-home care currently pay, on average, about $9,000 per year for that care. Childcare expenditures amount to 40% of income for families with incomes below $18,000, and 20% for those with incomes between $18,000 and $36,000.²¹ That’s far too much.

How much should parents pay? A sliding scale, with the user fee rising in proportion to family income and capped at around 10%, seems sensible.

Should it be free for those with low incomes? I think that would be a mistake. Early education differs from services that relatively few people opt out of, such as police protection, healthcare, and even K-12 education. Families that prefer to provide stay-at-home parental care for their young children will elect not to use it. This argues for having parents who do use it pay something — even parents with little income. The fee should be modest, but it shouldn’t be zero.

HOW MUCH WILL IT COST TAXPAYERS?

The bill to taxpayers will depend on specific details, but a rough estimate is 1% of GDP, or $160 billion, per year.

There are two ways to reach this number. First, our public spending on K-12 education is about 4% of GDP, or $600 billion.²² There are 50 million students in our public K-12 schools (the enrollment rate is 85-90%²³), so public expenditures come to about $12,000 per student. There are around 16 million children aged one to four. Suppose 75% enroll in early education; that’s 12 million children. If we spend $12,000 per child, the same as for K-12 schools, total spending would be around $145 billion. We’ll want a better teacher-child ratio for early education, which will increase the cost a bit, though user fees will help cover this.

Second, public expenditure on early education in Denmark and Sweden is about 1.5% of GDP.²⁴ We’re likely to end up with more private provision and we have a larger per capita GDP, so 1% of our GDP might well be sufficient to create a system that approximates theirs in quality and accessibility.

Note that my estimate of the cost is far higher than that of recent proposals by the Obama administration and the Center for American Progress.²⁵ That’s because those proposals are for relatively small additions to our current system.

How much will taxes increase for individual households? If the distribution of new tax payments needed to fund early education is the same as for existing tax payments, households in the bottom fifth of incomes will pay $133 more per year, those in the lower-middle fifth $333, those in the middle fifth $666, those in the upper-middle fifth $1,266, and those in the top fifth $4,200.²⁶ These amounts are fairly small — an advantage of spreading the bill across the population.²⁷ And actual increases in tax payments probably would be even smaller, since we already spend some public money on early education.

Over the long run, universal early education may pay for itself via increased employment and productivity.²⁸ Even if it doesn’t, however, it’s well worth doing in order to improve work-family balance and equality of opportunity.

SO WHAT’S NOT TO LIKE?

I see seven principal objections to universal publicly-funded early education for the United States.

First, when someone suggests borrowing a policy or institution from the Nordic countries, skeptics immediately point out that these countries are very different from America. They’re small, they’re more ethnically and racially homogenous, and their cultures and histories are quite distinct from ours. What works there, in other words, won’t necessarily work here.

That’s true. But it doesn’t justify blanket skepticism about borrowing. We need to consider the particulars of the policy in question. There is no reason to think a system of publicly-funded early education centers (schools) can function effectively only in a small homogenous country. France does this, even though it’s a pretty large nation. Belgium does too, despite its diversity.²⁹ And we do a reasonably good job ourselves with kindergartens and elementary schools. Education experts and ordinary Americans routinely profess dissatisfaction with our K-12 public schools. But recall the evidence I mentioned earlier: inequality in capabilities expands when children aren’t in school (before kindergarten and during summers), while K-12 schools hold it at bay. American schools could be better, to be sure, but for less advantaged children they are, even in their current condition, far more helpful than the likely alternative.

A second objection is that we don’t know how large the impact of early education will be in boosting the capabilities of children from less advantaged families. The expectation of a sizeable effect is compelling, and we have supportive evidence from K-12 schooling, from three high-quality early education programs, and from cross-country comparison. But that evidence is limited.³⁰

Though this is a legitimate concern, it shouldn’t dissuade us. Equalizing opportunity is such a prized goal that even a modest improvement would be valuable. And regardless of its impact on opportunity, early education will be of considerable benefit in helping parents balance work and family.

Third, some contend that more government spending and higher taxes will hurt the economy. But the relevant evidence says otherwise. Over the past century the United States has shifted from a country with a small government to one with a medium-sized government, but our long-term rate of economic growth hasn’t slowed. And among the world’s rich nations, those with larger governments have tended to grow just as rapidly as those with smaller governments.³¹

Fourth, some believe government provision of services and benefits weakens families.³² If parents have access to affordable good-quality childcare and preschool, will they be less likely to stay together or get married in the first place? That’s conceivable, but the historical and comparative evidence suggests reason for skepticism. Enrollment in elementary and secondary schools grew steadily in the United States from the late 1800s until around 1960, but it was in the 1960s, after the rise in school enrollment slowed sharply, that rates of divorce and out-of-wedlock birth shot up.³³ And more children grow up with both parents in Denmark, France, and Sweden, each of which has a universal early education system, than in the United States.³⁴

Fifth, some worry about rent-seeking if a substantial amount of early education is publicly provided. Public-sector employees may be able to get above-market pay and benefits, increasing the cost to taxpayers.³⁵ The evidence on this is mixed.³⁶ But suppose we as a collectivity do end up paying more than we need to. The question is whether the outcome is worth it. My judgment is yes. It’s the same with our military, police protection, fire fighting, medical care, K-12 schooling, and others. These services yield immense individual and social benefits, and I’m willing to bear a slightly elevated cost in order to ensure that all Americans have access to them.

A sixth objection suggests that publicly-provided services tend to be of low quality. Yet the evidence from our public K-12 schools offers cause for optimism. While there is lots of room for improvement, they do help to equalize opportunity. They also, of course, facilitate employment by parents. Public early education will do the same.

Finally, why not just give the money to parents and let them choose whether to use it on early education or on something else? The reason is that if early education has individual and social benefits, it makes sense to require that the money be used for that and only that. The same is true of safety (military, police), infrastructure (roads, bridges), health insurance (Medicare, Medicaid), and K-12 schooling, among others. Though paternalism is a dirty word for some, a key purpose of government is precisely to help us do things we might not choose on our own.

It’s worth emphasizing that having a universal early education system doesn’t mean anyone will be forced to use it. Parents who prefer to stay home with their children during the first five years will still be able to do so.

WHAT’S IN IT FOR REPUBLICANS?

In 2012, 20 million Americans with incomes below $50,000 voted Republican in the presidential election. Many in this group who have young children can’t afford good-quality out-of-home care. These parents and their kids would benefit from universal early education. The same is true for some of the 20 million Republican voters with incomes between $50,000 and $100,000.³⁷ Republican leaders who want to improve their constituents’ well-being ought to be interested in early education.

Moreover, many of these Americans would embrace publicly-funded early education, at least after the fact. Yes, a significant share of them dislike the idea of big government, but they nevertheless like a lot of the public insurance and public services that our government provides.³⁸ Many of them happily send their children off to public elementary schools, middle schools, and high schools every day. They would do the same with early education. In Oklahoma, one of the reddest of red states, the enrollment rate in the public preschool program for four-year-olds is 74%.³⁹

PATIENCE IS A VIRTUE, BUT WHY WAIT?

America is a long way from universal early education, and the difficult part is the politics. But that’s often the case. Consider healthcare. We began by creating the Veteran’s Administration after the Civil War. Tax breaks for employer contributions to private health insurance came after World War II. Medicare and Medicaid were created in the 1960s. Medicaid coverage was expanded in the 1980s and 1990s, and Medicare in the 2000s. The Affordable Care Act arrived in 2010, and even when it is fully implemented we’ll still fall short of universal access and affordable cost. Advances in our public insurance and public services tend to come incrementally, and early education may be no exception.

Yet that doesn’t mean it’s best to proceed slowly. The case for universal good-quality publicly-funded early education is strong. For America’s parents and children, sooner would be better than later.

1. What should we seek?
2. Economic security
3. Opportunity
4. Shared prosperity I
5. Shared prosperity II
6. Shared prosperity III
7. Health care
8. Education
9. Social policy
10. Is big government bad for the economy?
11. Can we pay for it?
12. Other worries about big government
13. Strengthen families?
14. Expand our private safety net?
15. The politics of getting from here to there
16. What do Americans want?
17. The rhetoric of reaction
18. Can the left get elected?
19. The balance of organized power has shifted to the right
20. The structure of the U.S. political system

I suspect (here, here) that some of the left’s chief strategies for solving this problem — reviving manufacturing, strengthening unions, and full employment — aren’t likely to be achievable. Indeed, I don’t see any reason for optimism about wage growth for the lower half going forward. I therefore think it’s worth exploring alternative ways to ensure that household incomes and living standards can keep pace with economic growth.

Jared Bernstein has some characteristically thoughtful comments. His main point is that we shouldn’t give up on rising wages. He thinks in particular that there’s a reasonable chance we can get the labor market tight enough to push wages up, as happened in the late 1990s. He and I agree that much hinges on the Fed’s approach. Here’s Jared:

The monetary authorities will pursue full employment but the question is how will they define it? If they set it too high (i.e., if they assume a NAIRU that’s too high), we’ll fail to create the wage pressure Lane cites above. But remember, the Federal Reserve is not a “structural trend” like the shifting of manufacturing output from advanced to emergent economies. They are a policy making body and are not immutable nor impervious to change. For Keynes’ sake, it was Greenspan of all people who presided over—in fact, accommodated—the full employment period of the latter 1990s. And post-crash, Bernanke and Yellen have been, in word and deed, acting quite differently than Lane’s post-crash supposition above. So Lane might be right but I wouldn’t make that assumption and progressives should fight back hard on this one.

I agree we should try to get the Fed to take more seriously its full employment mandate. That would be an enormously beneficial policy shift. But it’s a difficult battle, even if Janet Yellen becomes the next Fed chair. And what the Fed has done in this crisis isn’t necessarily a signal of what it will do if and when the economy gets close to full employment. There, I think our best guide is the past. The late 1990s, when Greenspan chose to keep interest rates low despite an unemployment rate that reached below 4%, was very much the exception rather than the rule.

Let me put in this way: Given that we’ve had a labor market tight enough to push wages up in only a few of the past 30-plus years, is it wise to see this as a likely solution to wage stagnation?

Ultimately, though, I think any disagreement between Jared and me here is one of emphasis. Jared wants us to keep seeking ways to get wages rising again. I do too, but I’d like to see more exploration of non-wage paths to rising incomes and living standards.

America’s opportunity gap

America’s struggling lower half

Social democratic America

Social policy

Macrocomparative research

1. Should we legalize marijuana?
2. Do we need a carbon tax to reduce climate change?
3. Should same-sex marriage be legal?
4. Is political polarization hurting America?
5. Why are some of us red and others blue?
6. Should we reduce taxes?
7. Should we reduce income inequality?
8. How can we get our economy back to health?
9. Is big business ruining America?
10. Should we promote gender equality?
11. What should we eat?
12. Would less regulation make cities better?
13. Should we limit imports and outsourcing?
14. Should we reduce illegal immigration?
15. When should we intervene abroad?

It’s Hard to Make It in America: How the United States Stopped Being the Land of Opportunity

by Lane Kenworthy

For all the differences between Democrats and Republicans that were laid bare during the 2012 U.S. presidential campaign, the parties’ standard-bearers, Barack Obama and Mitt Romney, do seem to have agreed on one thing: the importance of equal opportunity. In remarks in Chicago in August, Obama called for an “America where no matter who you are, no matter what you look like, no matter where you come from, no matter what your last name is, no matter who you love, you can make it here if you try.” The same month, he urged the Supreme Court to uphold affirmative action in public universities, putting his weight behind what has been a mainstay of U.S. equal opportunity legislation since the 1960s. Days later, the Republican vice presidential nominee, Paul Ryan, echoed Obama’s sentiment, saying, “We promise equal opportunity, not equal outcomes.” Romney, too, argued that whereas Obama “wants to turn America into a European-style entitlement society,” his administration would “ensure that we remain a free and prosperous land of opportunity.”

It is no accident that both campaigns chose to emphasize equality of opportunity. It has long been at the center of the American ethos. And one of the United States’ major successes in the last half century has been its progress toward ensuring that its citizens get roughly the same basic chances in life, regardless of gender or race. Today, women are more likely to graduate from college than men and are catching up in employment and earnings, too. The gap between whites and nonwhites has narrowed as well, albeit less dramatically.

Yet this achievement has been double edged. As gender and race have become less significant barriers to advancement, family background, an obstacle considered more relevant in earlier eras, has reemerged. Today, people who were born worse off tend to have fewer opportunities in life.

Of course, there is no perfect way to measure opportunities. The best method devised thus far is to look at outcomes: college completion, gainful employment, and sufficient income. If the average outcome for one group far outpaces that for another, social scientists conclude that the first group had greater opportunities. Comparing outcomes is not foolproof, as differences in outcomes can result from differences in effort. But a person’s effort is itself shaped by the circumstances he or she encounters.

To assess equality of opportunity among people from different family backgrounds, the measure of outcome that social scientists look at is relative intergenerational mobility — a person’s position on the income ladder relative to his or her parents’ position. Social scientists don’t have as much information as they would like about the extent of relative intergenerational mobility, its movement over time, and its causes. The data requirements are stiff; analysts need a survey that collects information about citizens’ incomes and other aspects of their life circumstances, then does the same for their children, and for their children’s children, and so on. The best assessment of this type in the United States, the Panel Study of Income Dynamics, has been around only since the late 1960s.

Even so, there is general consensus among social scientists on a few basic points. First, an American born into a family in the bottom fifth of incomes between the mid-1960s and the mid-1980s has roughly a 30 percent chance of reaching the middle fifth or higher in adulthood, whereas an American born into the top fifth has an 80 percent chance of ending up in the middle fifth or higher. (In a society with perfectly equal opportunity, every person would have the same chance — 20 percent — of landing on each of the five rungs of the income ladder and a 60 percent chance of landing on the middle rung or a higher one.) This discrepancy means that there is considerable inequality of opportunity among Americans from different family backgrounds.

Second, inequality of opportunity has increased in recent decades. The data do not permit airtight conclusions. Still, available compilations of test scores, years of schooling completed, occupations, and incomes of parents and their children strongly suggest that the opportunity gap, which was narrowing until the 1970s, is now widening.

Third, in a sharp reversal of historical trends, there is now less equality of opportunity in the United States than in most other wealthy democratic nations. Data exist for ten of the United States’ peer countries (rich long-standing democracies). The United States has less relative intergenerational mobility than eight of them; Australia, Canada, Denmark, Finland, Germany, Norway, Sweden, and the United Kingdom all do better. The United States is on par with France and Italy.

So how did the United States get here? Why did it falter where other nations have not? And how can it fix the problem? On the right, a standard proposal is to strengthen families. On the left, a recent favorite is to reduce income inequality. And everyone supports improving education. To know which proposals would work best, it helps to understand the roots of the new opportunity gap.

THE LOST OPPORTUNITY COST

Between the mid-1800s and the 1970s, differences in opportunity based on family circumstances declined steadily. As the formerly farming-based U.S. labor force shifted to manufacturing, many Americans joined the paid labor force, allowing an increasing share of them to move onto and up the income ladder. Elementary education became universal, and secondary education expanded. Then, in the 1960s and 1970s, school desegregation, the outlawing of discrimination in college admissions and hiring, and the introduction of affirmative action programs helped open economic doors for an even wider swath of Americans.

But since the 1970s, the United States has been moving in the opposite direction. A host of economic and social shifts seem to have widened the opportunity gap between Americans from low-income families and those from high-income families. First, family life has changed, at least for some. The share of poorer children growing up with both biological parents has fallen sharply, whereas there has been less change among the wealthy. About 88 percent of children from high-income homes grow up with married parents. That is down from 96 percent four decades ago. Meanwhile, only 41 percent of poorer children grow up in homes with married parents, down from 77 percent four decades ago. That has hurt poorer children’s chances of success, since children who live with both of their parents are more likely, even accounting for income, to fare better in school, stay out of trouble with the law, maintain lasting relationships, and earn higher incomes as adults.

The modern culture of intensive parenting — a largely middle- and upper-class phenomenon — adds to the gap. Low-income parents are not able to spend as much on goods and services aimed at enriching their children, such as music lessons, travel, and summer camp. Low-income parents also tend to read less to their children and provide less help with schoolwork. They are less likely to set and enforce clear rules and routines for their children. And they are less likely to encourage their children to aspire to high achievement in school and at work.

Furthermore, a generation ago, most preschool-aged children stayed at home with their mothers. Now, many are enrolled in some sort of child care. But the quality of their experiences varies. Affluent parents can send their children to nationally recognized education-oriented preschools. Poorer parents might have little choice but to leave their children with a neighborhood babysitter who plops them in front of the television. Research by the economist James Heckman and others finds that much of the gap in cognitive and noncognitive skills between children from poor homes and those from affluent homes is already present by the time they enter kindergarten.

Things don’t improve once children reach grade school. Funding for public K-12 schools, which used to vary sharply across school districts, has become more even in recent decades. Nevertheless, a large difference remains in the quality of education between the best and the worst schools, and the poorest neighborhoods often have the weakest schools. According to data compiled by Sean Reardon of Stanford University’s School of Education, the gap in average test scores between elementary- and secondary-school children from high-income families and those from low-income families has risen steadily in recent decades. Among children born in 1970, those from high-income homes scored, on average, about three-quarters of a standard deviation higher on math and reading tests than those from low-income homes. Among children born in 2000, the gap has grown to one and a quarter standard deviations. That is much larger than the gap between white and black children.

Partly because they tend to be far behind at the end of high school, and partly because college has gotten so expensive, children from poor backgrounds are less likely than others to enter and complete college. The economists Martha Bailey and Susan Dynarski have compared the college completion rates of Americans who grew up in the 1960s and 1970s to the rates of those who grew up in the 1980s and 1990s. The share of young adults from high-income homes that got a four-year college degree rose from 36 percent in the first group to 54 percent in the second group. The share from low-income homes, however, stayed almost flat, rising only from five percent to nine percent.

When it comes time to get a job, the story is no better. Low-income parents tend to have fewer valuable connections to help their children find good jobs. Some people from poor homes are further hampered by a lack of English-language skills. Another disadvantage for the lower-income population is that in the 1970s and 1980s, the United States began incarcerating a lot more young men, including many for minor offenses. Having a criminal record makes it all the more difficult to get a stable job with decent pay — if, that is, good jobs still exist. A number of developments, including technological advances, globalization, a loss of manufacturing employment, and the decline of unions, have reduced the number of jobs that require limited skills but pay a middle-class wage — the very kind of jobs that once moved poorer Americans into the middle class.

Finally, changes in partner selection have also widened the opportunity gap. Not only do those from better-off families tend to end up with more schooling and higher-paying jobs; they are more likely than ever to marry (or cohabit with) others like themselves, according to research by the sociologists Christine Schwartz and Robert Mare.

For all these reasons, the gap in opportunity between the United States’ rich and poor has expanded in recent decades. Left unchecked, the trend threatens not only to offset the progress the United States has made on gender and racial equality but also to usher in a future of deep and hardened class divisions.

It might be tempting to shrug and conclude that the high and increasing opportunity gap in the United States is an unfortunate but inevitable consequence of economic and social shifts. The problem with this reaction is that other affluent democracies do better. The United States has lost its historical distinction as the land of opportunity. Yet there is at least some good news: the fact that other countries are more successful in this area suggests that with the right policies, the United States could do better, too.

VALUABLE FAMILIES

One simple, straightforward solution would be to get more money into the hands of low-income families with children. The education policy experts Greg Duncan, Ariel Kalil, and Kathleen Ziol-Guest have found that for children who grew up in the United States in the 1970s and 1980s, an increase in family income of a mere $3,000 during a person’s first five years of life was associated with nearly 20 percent higher earnings later in life. The finding suggests that government cash transfers of just a few thousand dollars could give a significant lifelong boost to the children who need it most. Most other affluent countries, including those that do better on equality of opportunity, offer a universal “child allowance” that does exactly this. In Canada, for instance, a family with two children receives an annual allowance of around $3,000, and low-income families with two children might receive more than $6,000. The United States has only a weaker version of the benefit, the Child Tax Credit, which doles out a maximum of just $1,000 a year per child. Moreover, receipt of the money is contingent on filing a federal tax return, which not all low-income families do.

Other solutions involve Washington getting involved in home life. Fewer children in the United States grow up with both biological parents than in any other affluent country for which data are available. To remedy this, some, such as Barbara Dafoe Whitehead and David Popenoe, co-directors of the National Marriage Project at Rutgers, favor efforts to promote marriage. But research by the sociologists Kathryn Edin, Sara McLanahan, and Paula England and others suggests that this strategy is misplaced. Since women today need less from marriage and expect more from it than they used to, those who are better educated and better off tend to take more time to get established in their jobs and find good partners, which enhances the likelihood of a lasting marriage (or cohabitation). They delay childbearing as well. Among poorer and less-educated women, who see little prospect of a fulfilling and lucrative career, having a child in their teens or early 20s remains common. These women are less likely to stay with a partner: they have had less time to mature personally and to find a person with whom they are compatible, their partners are more likely to have weak financial prospects and a preference for traditional gender roles, and the presence of a child heightens financial and interpersonal tensions. Given all this, convincing more young low-income couples who get pregnant to marry is unlikely to produce many lasting relationships.

Genuine progress probably hinges on poor or less-educated women delaying childbirth. Eventually, this will happen; the teen birthrate has already been dropping for nearly two decades, albeit slowly. For its part, Washington (or any other government) has only limited tools to speed it up. The best might be an education campaign, as Ron Haskins and Isabel Sawhill, policy experts at the Brookings Institution, have suggested, that focuses on the benefits of the “success sequence”: first education, then a stable job, then marriage, and then children.

What about parenting practices, which have a clear effect on childhood development? Although few Americans support extensive government intrusion into home life, one potentially acceptable way that Washington and state governments could try to improve parenting is by paying for home visits by nurses or counselors and providing free or low-cost parenting classes. Getting people to change their behavior and routines is very difficult, so the benefits of such programs are inevitably modest. Nonetheless, in a recent review of existing research, the sociologist Frank Furstenberg found evidence that programs aimed at teaching better practices to parents of children at middle-school age or younger yield some improvements in school readiness and school performance.

MAKING THE GRADE

Given the difficulties of altering home life, improving schools remains the United States’ main tool for assisting less-advantaged children. For all their inadequacies, public schools do help equalize opportunity by improving students’ cognitive abilities. During summer vacation, the cognitive abilities of children in low-income families tend to regress, relative to those of their more advantaged peers. In other words, these children would lag even further behind if they never attended school. 

A universal system of affordable, educational child care and preschool could help close the capability gap that opens up during the early years of life. Additionally, it would facilitate parents’ employment and thereby boost household incomes, making it doubly helpful for children in low-income families. The Nordic countries offer some lessons: in the 1960s and 1970s, these countries introduced paid maternity leave and publicly funded child care. Today, early education teachers there have training and pay comparable to those of elementary school teachers. The cost of early education is capped at around ten percent of household income. In all these countries, a person’s cognitive abilities, likelihood of completing high school and college, and eventual success in the job market tend to be less heavily determined by his or her family’s wealth and makeup than in the United States.

There has been some movement to expand the United States’ child-care and educational systems at the state level in the past two decades. Most states now have full-day public kindergarten, and some have added public preschool for four-year-olds. But the progress has been very slow, and in recent years, it has been set back by state revenue shortfalls. Assistance from Washington would be of considerable help.

The equalizing effects of college, too, cannot be overstated. Among Americans whose family incomes at birth are in the bottom fifth but who get four-year college degrees, 53 percent end up in the middle fifth or higher. That is pretty close to the 60 percent chance they would have with perfectly equal opportunity. Washington needs to do better at helping people from less-advantaged homes afford college. The average in-state tuition at an American four-year public university exceeds $8,000. In Norway, Sweden, Denmark, and Finland, attending four-year public universities is free. According to data from the Organization for Economic Cooperation and Development, in those nations, the odds that a person whose parents did not complete high school will attend college are between 40 and 60 percent, compared with just 30 percent in the United States.

WORKING ON LABOR

Employment is the next challenge. First, the low-hanging fruit: since a prison record impedes labor-market success, the United States should rethink its approach to punishment for nonviolent drug offenders. According to the sociologist Bruce Western, states that have reduced imprisonment over the past decade, instead turning to alternative punishments, such as fines and community corrections programs, have experienced drops in crime similar to states that have increased imprisonment. If other states were to follow suit, the United States could avoid needlessly undermining the employment opportunities of a significant number of young men from less-advantaged homes.

Broader trends in the labor market since the 1970s present a stickier problem. Hourly wages at the median and below have not budged in inflation-adjusted terms. In the 1980s and 1990s, the United States created a lot of new jobs. These facilitated the movement of women into the work force and thereby helped many households enjoy rising incomes despite the stagnation in wages. But in the early years of this century, employment growth stopped, and the subsequent recession and slow recovery have dealt a crushing blow to the less skilled. The employment rate among men aged 25-54 who did not finish high school dropped by ten percentage points between 2007 and 2010.

Eventually, the U.S. economy will get back on track, but that will not automatically lead to more jobs and higher wages. The lone period of sustained wage growth at the middle rung and below occurred in the late 1990s. What distinguishes that period is that the Federal Reserve allowed the unemployment rate to drop to four percent, well below what many economists believed to be the level at which inflation would accelerate. If and when the United States returns to low unemployment, it will need the Federal Reserve to again be willing to allow wages to rise significantly before stepping on the brakes.

It would be foolish to count on this, though, so the United States would do well to consider alternative strategies. One useful tool might be the Earned Income Tax Credit. At the moment, the EITC provides an annual subsidy of up to $6,000 to households with less than $50,000 in earnings. That is helpful, but for a person with no children, the credit amounts to less than $500. That group — young adults with low earnings and no children — includes many Americans who grew up in disadvantaged circumstances. If the economy is growing but wages are not, the United States can and should offer a bigger boost to these people’s incomes.

In the past year, a number of commentators, most notably Alan Krueger, chair of the White House Council of Economic Advisers, have suggested that reversing the rise in income inequality could improve economic mobility in the United States. After all, among the countries for which there are comparable data, those with less income inequality tend to have higher relative intergenerational mobility. The United States was already on the high end of the income-inequality scale a generation ago, and since then it has moved even further in that direction.

Yet general calls to reduce income inequality offer little help in identifying which policies to pursue. Consider three possibilities. First, imagine that Washington legislated a radical reduction in the pay differentials for various types of jobs. (Narrower pay differentials account for part of the smaller opportunity gaps in the Nordic countries.) This certainly would reduce income inequality. It would also reduce opportunity inequality: at least in the first generation, even if someone’s capabilities matched perfectly those of his or her parents, his or her income would not. But such a drastic step is not likely to happen, in part because few Americans would support it. Second, suppose the United States were to raise income tax rates for the top one percent of households and lower them for middle-class households. Such a move would reduce income inequality, but it would do little to improve the opportunities of children in low-income families. Third, suppose the United States increased tax rates for all households and used the revenue to fund universal early education. (As the political scientist Andrea Campbell recently wrote in these pages, most other advanced democracies devote far more tax revenue to social programs.) That step would do little to counter income inequality, but it could substantially expand opportunity. A reduction in income inequality, in short, is neither necessary nor sufficient for achieving a reduction in inequality of opportunity.

LAND OF OPPORTUNITY

For all that other countries’ experiences can teach the United States, there are also lessons the United States should take from its own history. The most direct way that Washington has made opportunity more equal in the past has been through affirmative action. Affirmative action is not a strategy that many other affluent countries have embraced, but it has a proven track record in the United States. Since the late 1960s, affirmative action programs for college admissions and for hiring have expanded opportunities for women and various minority groups.

Now, a number of observers from across the partisan spectrum, from Richard Kahlenberg, a senior fellow at the left-leaning Century Foundation, to Charles Murray, a fellow at the right-leaning American Enterprise Institute, favor shifting the focus of affirmative action efforts from race and gender to family background. Emphasizing family background would continue to disproportionately help African American and Latino children, since they are more likely to come from families with low incomes and other disadvantages. Indeed, it would do more to help poor black and Latino children than traditional race-based affirmative action programs, which have mainly benefited middle-class members of such minority groups.

In response to court rulings and ballot initiatives outlawing consideration of race in admissions decisions, some public university systems, including those of California and Texas, have already moved in this direction. One approach guarantees the top ten percent of students graduating from any public high school in a state automatic admission to a public university in that state. Sometimes, this is helpful; in schools where almost all the students are from poor families, the top ten percent of the graduating class will inevitably include low-income students. A more direct strategy would be for colleges and universities to consider family background as one of several kinds of disadvantages that applicants may have faced and to include that among the criteria by which applicants are ranked.

How might employers be persuaded to use this direct approach? Half a century ago, the federal government mandated the use of affirmative action in public agencies and in firms with which it contracted. It could do the same now in order to address the nation’s new opportunity gap.

In the last half century, the United States has taken long strides toward equalizing economic opportunity. That progress did not happen on its own; it took place with a push from the government. In recent decades, however, the opportunity gap for Americans from different family backgrounds has started to grow. Fortunately, the United States’ experience and that of other affluent nations suggest that the country is not helpless in the face of economic and social changes. There is no silver bullet; a genuine solution is likely to include an array of shifts in policy and society. Even so, a fix is not beyond the United States’ reach.

1. Countries choose between two types of capitalism. “Cutthroat” capitalism provides large financial rewards to successful entrepreneurship. This yields high income inequality, but it stimulates lots of entrepreneurial effort and hence is conducive to innovation. “Cuddly” capitalism features less financial payoff to entrepreneurs and more generous cushions against risk. This yields modest income inequality but less innovation.
2. Because of the difference in innovation, economic growth initially is faster in cutthroat-capitalism nations. But technological advance spills over from cutthroat nations to cuddly ones, so growth rates then equalize. Over the long run, GDP per capita is higher in cutthroat-capitalism nations (due to the initial burst) while economic growth rates are similar across the two types.
3. Average well-being may be higher in cuddly countries because the more egalitarian distribution of economic output more than compensates for the lower level of output.
4. Nevertheless, it would be bad for all countries if cutthroat-capitalism nations switched to cuddly capitalism. That would reduce innovation in the (formerly) cutthroat nations, which would reduce economic growth in all nations.

Acemoglu, Robinson, and Verdier say the model might help us understand patterns of economic growth and well-being in the United States and the Nordic countries — Denmark, Finland, Norway, and Sweden. The United States chose cutthroat capitalism, while the Nordics chose cuddly capitalism. The U.S. grew faster for a short time, but since then all five countries have grown at the roughly same pace. America’s high inequality encourages innovation. The Nordics can be cuddly and still grow rapidly because of technological spillover. If the U.S. were to decide to go cuddly, innovation would slow. Both sets of nations would grow less rapidly.

Incentives, innovation, and economic growth in the U.S. and Sweden

I won’t provide the “detailed empirical study of these issues” that Acemoglu and colleagues say they hope their paper will inspire, but I can offer a little data. To keep things simple, I’ll compare the United States with just one of the Nordic countries: Sweden.

An indicator of financial incentives for entrepreneurs is the top 1%’s share of household income. An indicator of the extent of cushions against risk is government expenditures’ share of GDP. What we see in the data is a lot of similarity between the U.S. and Sweden until the second half of the twentieth century. Government spending begins to diverge in the 1960s, income inequality in the 1970s.

Though Sweden’s top 1% get a smaller share of the total income than their American counterparts, are incentives for entrepreneurs really much weaker in Sweden? Swedish CEOs and financial players don’t pull in American-style paychecks and bonuses in the tens of millions, but there is little to prevent an entrepreneur from accumulating large sums. In the 1990s Sweden undertook a significant tax reform, reducing marginal rates and eliminating loopholes and deductions. Corporate income and capital gains tax rates were lowered to 30%, and the personal income tax rate to 50%. Later the wealth tax was done away with. In the early 2000s a writer for Forbes magazine mused that Sweden had transformed itself from a “bloated welfare state” into a “people’s republic of entrepreneurs.”

But set this aside for the moment. Suppose the incentives for entrepreneurs did begin to differ in the two countries around 1960 or 1970. The model predicts innovation will subsequently diverge. Acemoglu, Robinson, and Verdier refer to one measure of patent applications per capita that has the U.S. leading Sweden beginning in the late 1990s. That timing perhaps is consistent with the model’s prediction if we allow a substantial lag. But they cite another measure that is available starting in 1980 and has the U.S. well ahead of Sweden already by then. This suggests America’s innovation advantage might have preceded rather than followed the two countries’ type-of-capitalism choice.

The final outcome is GDP per capita. Here the model stumbles. The gap between the two countries isn’t recent; it dates back to more than a century ago. Apart from a few hiccups, each country has stayed on its long-run growth path throughout the past 100 years, with Sweden slowly catching up to the United States.

So the U.S. and Sweden have chosen different styles of capitalism, at least as measured by income inequality and public spending. That choice looks to have occurred around 1960 at the earliest. The U.S. may be the more innovative of the two nations, and that advantage may have come after the type-of-capitalism choice. But the model doesn’t seem to help in explaining the gap between the two countries in per capita GDP.

Will American innovation slow if we go “cuddly”?

The really interesting question posed by Acemoglu, Robinson, and Verdier is whether innovation would slow in the United States if we strengthened our safety net and/or reduced the relative financial payoff to entrepreneurial success. I’m skeptical, for three reasons.

The first flows from America’s past experience. According to Acemoglu et al’s logic, incentives for innovation in the U.S. were weakest in the 1960s and 1970s. In 1960 the top 1%’s share of pretax income had been falling steadily for several decades and had nearly reached its low point. Government spending, meanwhile, had been rising steadily and was close to its peak level. Yet there was plenty of innovation in the 1960s and 1970s, including notable advances in computers, medical technology, and other fields.

Second, the Nordic countries, with their low income inequality and generous safety nets, currently are among the world’s most innovative countries. The World Economic Forum’s Global Competitiveness Index has consistently ranked them close to the United States in innovation. The most recent report, for 2012-13, rates Sweden as the world’s most innovative nation, followed by Finland. The U.S. ranks sixth. The 2012 WIPO-Insead Global Innovation Index ranks Sweden second and the United States tenth. Whether or not this lasts, it suggests reason to doubt that modest inequality and generous cushions are significant obstacles to innovation.

Third, if Acemoglu and colleagues are correct about the value of financial incentives in spurring innovation, we should see this reflected not only in the United States but also in other nations with relatively high income inequality and low-to-moderate government spending, such as Australia, Canada, Ireland, New Zealand, and the United Kingdom. But we don’t.

There’s one additional possibility worth considering. If financial incentives truly are critical for spurring innovation, it could be the opportunity for large gains that matters, rather than the absence of cushions. Suppose we were to increase government revenues in the United States via higher taxes on everyone — steeper income taxes on the top 1% or 5% plus a new national consumption tax. And imagine we used those revenues to expand public insurance and services — fully universal health insurance, universal early education, a beefed-up Earned Income Tax Credit, a new wage insurance program, more individualized assistance with training and job placement. These changes wouldn’t alter income inequality much, but they would enhance economic security and opportunity. Would innovation decline? I doubt it.

We may get a test of this moderate-to-high inequality with generous cushions scenario at some point. I suspect this is where America is heading, albeit slowly. Interestingly, the Nordic countries, where the top 1%’s income share has been trending upward (see figure 10 here), might end up there first.

Who receives government benefits: Plumer, Mettler and Sides, Kenworthy

Commentary: Be sure to read Reihan Salam, David Brooks, and Claude Fischer. I especially like this, from Ryan Avent:

The belief that there is an irreconcilable conflict between government benefits and the freedom to pursue dreams can only arise among those who have never had to worry about the reality of equality of opportunity in America. For most Americans, public schools are a critical piece of the machinery of economic mobility. Things like unemployment insurance and social security, meagre though they are, sometimes mean the difference between destitution and the possibility of a second chance or a non-wretched standard of living. For many Americans, the ability to even contemplate dreams for a better life is down to the small cushion and basic investments provided by governments, provided for precisely that reason, because an economy in which only those born with a comfortable financial position can invest in human capital and take entrepreneurial risks is doomed to class-based calcification.

America’s welfare state is far from perfect. But it is necessary; indeed, it’s hard to imagine a just and sustainable system of free enterprise without a robust social safety net. Republicans need to recognise this and acknowledge that the past three decades have meant rising income inequality and falling economic mobility alongside top marginal tax rates that are among the lowest of the postwar period. A party that can’t come up with a better answer to this dynamic than to conclude that half of America simply isn’t trying hard enough probably isn’t a party destined or deserving of electoral success.

Eberstadt doesn’t contend that this has weakened our economy. His concern is moral. He believes reliance on government for help is undermining Americans’ “fierce and principled independence,” our “proud self-reliance.”

In Eberstadt’s way of seeing things, we are either givers or takers — taxpayers or benefit recipients. This is mistaken. Every American who doesn’t live entirely off the grid pays some taxes. Anyone who is an employee pays payroll taxes, and anyone who purchases things at a store pays sales taxes. Likewise, every American receives benefits from government. If you or your kids attended a public school, if you’ve driven on a road, if you’ve had a drink of tap water or taken a shower in your dwelling, if you’ve deducted mortgage interest payments or a business expense from your federal income taxes, if you haven’t been stricken by polio, if you’ve never had a band of thugs remove you from your home at gunpoint, if you’ve visited a park or lounged on a beach or hiked a mountain trail, if you’ve used the internet….

Eberstadt seems to think receipt of a government cash transfer or health insurance somehow renders people less self-reliant than does receipt of the myriad public goods, services, and tax breaks that government provides. But he doesn’t say why.

Once upon a time public safety was ensured by individuals and privately-organized militias. Then we shifted to government police forces and armies. At one point humans got water and disposed of waste individually. Then we created public water and sewage systems. Education of children was once a family responsibility. Then it shifted to schools. There’s a good reason for this: government provision offers economies of scale and scope, which enables the good or service to be provided to many people who either couldn’t or wouldn’t do it on their own. Did Americans’ character or spirit diminish when these changes occurred? Is there something qualitatively different about the more recent shift from individual to government responsibility in how we deal with retirement saving, health care, unemployment, and other risks? Here too Eberstadt is silent.

It’s true that some government policies encourage people to work less than they otherwise would. If we create a public pension program (Social Security) and allow receipt of benefits beginning at age 62, some who could work longer will elect to retire at that age. If we ease eligibility criteria for receipt of disability benefits, some people who could be employed will instead choose to live off that benefit. But this behavior isn’t the product of an “entitlement culture” that has weakened our moral fiber; it’s the result of incentives created by specific programs. The solution is not to “roll back the entitlement state”; it’s to alter the rules and/or generosity of the particular program that is causing the problem (or to increase the financial reward from staying in employment).

At the end of his essay, Eberstadt shifts his concern from the moral cost of government to the financial cost. Rising government expenditures on transfers and health care will require, he says, that we cut military spending, sell off public assets (land, buildings, art), or dump the burden onto future generations by running up government debt. None of these options is attractive. But there is, of course, another option: increases taxes. As we’ve transferred various functions from individuals to government over the course of our nation’s history, we’ve (usually) paid for it by asking Americans to contribute more. In many other rich nations governments provide more services and transfers than ours does, and they (usually) fund this by collecting more in taxes than we do. Perhaps Eberstadt ignores this option because at the moment one of our two political parties opposes any tax increase and the leader of the other favors a tax increase for only 5% of the population. But if history is any guide, this stalemate eventually will pass. Higher taxes, coupled with modest tweaks to Social Security and more significant reforms of our (public and private) health care system, can generate enough revenue to pay for our public goods, services, and transfers.

Growth of government spending is not, for the most part, a consequence of rent-seeking special interests or narrow-minded bureaucrats looking to expand their turf. It’s a product of affluence. As people and nations get richer, they tend to be willing to allocate more money for insurance (protection against risks) and for fairness (extension of opportunity and security to those who are less fortunate). Rather than lamenting an imagined shift from self-reliance to dependence, or claiming that we can’t afford more security and fairness, the American right would do better to focus its energy and creativity on devising alternative ways of pursuing these goals. Government doesn’t always do things best; and even when it does, there almost always is room for improvement. Nicholas Eberstadt’s essay is emblematic of the backward-looking orientation that has dominated America’s right for the past three decades. It’s an orientation that in my view has long since outlived its usefulness. The country will benefit when more smart minds on that side of the spectrum turn their gaze forward.