THE ECONOMIC IMPACT OF EARLY CHILDHOOD EDUCATION. A Linchpin of L.A. s Business Profitability and Global Competitiveness?

Transcription

1 THE ECONOMIC IMPACT OF EARLY CHILDHOOD EDUCATION A Linchpin of L.A. s Business Profitability and Global Competitiveness? OCTOBER 212

2 The Economic Impact of Early Childhood Education

3 THE ECONOMIC IMPACT OF EARLY CHILDHOOD EDUCATION A LINCHPIN OF L.A. S BUSINESS PROFITABILITY AND GLOBALCOMPETITIVENESS? OCTOBER 212

4 The Economic Impact of Early Childhood Education 4

5 Contents // EARLY CHILDHOOD CARE AND EDUCATION 6 WORKFORCE DEVELOPMENT First 5 LA STRIVING TO CLOSE THE ACHIEVEMENT GAP 8 THROUGH ECE Los Angeles County Office of Education THE ECONOMIC IMPACT OF BUDGET CUTS 11 ON EARLY CHILDHOOD EDUCATION IN CALIFORNIA William Yu Economist, UCLA Anderson Forecast THE FIRST 5 LA/UCLA ANDERSON FORECAST 19 CITY HUMAN CAPITAL INDEX William Yu Economist, UCLA Anderson Forecast WALL STREET, K-STREET OR MAIN STREET? 43 WHO CAN SAVE US? Edward Leamer Director, UCLA Anderson Forecast CALIFORNIA EXPORTS: 57 HOW MUCH DO THEY MATTER? Jerry Nickelsburg Adjunct Professor, UCLA Anderson School Senior Economist, UCLA Anderson Forecast ACKNOWLEDGEMENTS 64 First 5 LA UCLA Anderson Forecast // October 212 5

6 The Economic Impact of Early Childhood Education POLICY STATEMENT EARLY CHILDHOOD CARE AND EDUCATION WORKFORCE DEVELOPMENT 6

7 Partner Statements // High quality early childhood education is essential to a child s preparation for school. What is more, quality early education is inextricably tied to the workforce the training, preparation and working conditions of those who provide care. Public policy decisions that prioritize resource availability for developing, implementing and monitoring a high quality early childhood care and education system are almost invariably affected by budgetary and regulatory constraints. In recent years, California legislators have pursued a number of policies to enhance child care and preschool environments as well as workforce protections and benefits. Given the current fiscal challenges at both state and federal levels, however, many bills that sought to improve systems have faltered. The advocate community and legislative allies have largely focused on preventing major budget cuts, including cuts to universities that train early education instructors. Policymakers must prioritize targeted investments in early childhood career pipelines, including enhanced preparation and training, loan forgiveness programs and worker protections. These and other policy changes will require years of persistent advocacy as well as a recognition by voters and policy makers that by investing in a strong workforce children, and society as a whole, will ultimately benefit. A workforce that is well trained, monitored, and paid a decent wage will provide excellent care and better enable a child to reach his or her full potential. Recognizing the importance of investing in early education workforce, the First 5 LA Board of Commissioners included workforce strengthening as a goal in the Policy Agenda under the Strategic Plan. First 5 LA UCLA Anderson Forecast // October 212 7

8 The Economic Impact of Early Childhood Education STRIVING TO CLOSE THE ACHIEVEMENT GAP THROUGH ECE Early Childhood Education (ECE) forms the foundation of Head Start and Early Head Start, a federal program designed to help children living in poverty to overcome educational, health, and social deficits. For more than 3 years, the Los Angeles County Office of Education (LACOE) has fulfilled this vision in support of children in Los Angeles County. LACOE Head Start-State Preschool offers a comprehensive birth-to-5 continuum of services for pregnant women, infants, toddlers, and preschoolers. LACOE s goal is to prepare children for success in school and beyond, with services in education, health, mental health, nutrition, family, and disabilities, which are delivered through delegate agencies in centerand home-based options. To offer these exceptional services, LACOE s Head Start-State Preschool supports its organization on four pillars of responsibility: Planning, Monitoring and Accountability, Training and Technical Assistance, and Resource Development and Collaboration. By investing in research-based educational programs, professional development for teachers and assistants, and training for family members, LACOE strives to close the achievement gap for those who start life at an economic disadvantage. In classrooms, delegate agencies are required to use only the most highly regarded curricula in preparing children to thrive academically in kindergarten and early grades. Teachers and assistants are required to hold bachelor s and associate s degrees or be enrolled in higher education programs leading to these. LACOE has partnered with such entities as the Office of the Chancellor of California State Universities to create innovative opportunities for busy teaching staff to obtain necessary credits, with online, weekend, and intensive learning. With the support of Cornell and the University of Connecticut, LACOE established the Family Development Credential program, a path for family workers to acquire essential knowledge and skills. The family remains the first and front-line educators of children. LACOE enhances the family s contribution by providing parenting classes on such topics as understanding your child s physical and emotional development, reading to your child, assessing your child s health needs, and more. Parents are encouraged to serve on committees, such as 8

9 Partner Statements // the Policy Council, and participate in shared decision-making in their child s education. By connecting families to their communities and the assistance they deserve, LACOE strengthens their self-reliance and their involvement in a brighter future. LACOE fosters the effective and efficient engagement of parents, the community, and highly qualified staff, at LACOE and the delegate agencies, to lift the potential and aspirations of the youngest and most vulnerable in our society. First 5 LA UCLA Anderson Forecast // October 212 9

10 The Economic Impact of Early Childhood Education 1

11 ECE Economic Impact // THE ECONOMIC IMPACT OF BUDGET CUTS ON EARLY CHILDHOOD EDUCATION IN CALIFORNIA William Yu Economist, UCLA Anderson Forecast October 212 In June, California passed its state budget. Despite the widespread budget cut buzz, compared to , the state general fund budget for actually increases 6.3%, or $5.4 billion. Although there is an aggregate expenditure increase, the total state funding for early childhood education (ECE) was cut by 13%, or $193 million. 1 This report will discuss the economic impacts of such budget cuts on ECE. CALIFORNIA GENERAL FUND EXPENDITURES Before we go into the details of the ECE expenditure, let s get the big picture of the budget by looking at the California state budget expenditure history and its allocation. Figure 1 displays California state general fund expenditures over the past four decades. It declined substantially (from $13 billion to $91 billion) in 28 because of the Great Recession and remained in the range of $86 billion and $91 billion from then on. The general fund expenditure is $91.34 billion, which is 6.3% higher than the $85.9 billion of the expenditure. However, the budget increase includes a plan Proposition 3 for temporary tax raising to fund the balancing of the budget. If the tax increases do not pass in the November ballot, it will automatically trigger a budget reduction of $5.95 billion, mostly in K-14 education expenditures. If that is the case, the new general fund expenditure will become $85.39 billion. And the new general fund will decline by.6% compared to Whether Proposition 3 passes or not, as a whole state expenditure, we The most valuable of all capital is that invested in human beings, and of that capital the most precious part is the result of the [child]care... Alfred Marshall, Principles of Economics, 189 Figure 1 California General Fund Expenditures, Current Dollars 1 (Billion $) Source: California Department of Finance First 5 LA UCLA Anderson Forecast // October

12 The Economic Impact of Early Childhood Education Figure (%) California General Fund Expenditures as a Percentage of California s Personal Income Source: California Department of Finance and Bureau of Economic Analysis do not see a serious budget cut for compared to If the temporary tax increases pass, California government expenditures go back to the level of If the tax revenues get rejected in ballot, state expenditures return to the level of Table 1 To understand the role the government plays in California s economy from a historical perspective, we can use the general fund as a percentage of California personal income to get a picture as shown in Figure 2. The ratio declines rapidly from 6.78% in 26 to 5.13% in and 5.26% (estimated) in The ratios in are the lowest since THE ALLOCATION OF CALIFORNIA GENERAL FUND EXPENDITURES In the general fund expenditure, K-12 education accounts for 41.4% of total expenditures, Health and Human Services accounts for 29.2%, Higher Education is 1.3%, Corrections and Rehabilitation is 9.7%, General Government is 3.3%, Legislative, Judicial and Executive is 2.3% and Environmental Protection is 2.1%, each of the remaining agencies accounts for less than 1% of the total budget as presented in Table 1. Since the first four agencies account for 9% of total government expenditure, let s take a look at the historical allocation of these four major expenditures as illustrated in Figure 3. K-12 expenditures fluctuate from 38.7% in to 41.4% in Health and Human Services fluctuates from 29.3% in to 29.2% in Unlike the ebb and flow of budget allocation on K-12 education and health and human services, we can see a secular trend of expenditure on Higher Education and Corrections and Rehabilitation. For higher education, it is trending down from 15.9% in to 1.3% in By contrast, for Corrections and Rehabilitation, it is trending up from 4.1% in to 9.7% in The reason for and the social return on the gradually increased share of public expenditure on corrections and rehabilitation are not clear. California General Fund Expenditures by Agency General Fund Expenditures (Million $) Percentage (%) Business, Transportation and Housing Environmental Protection 46.1 General Government 2, Health and Human Services 26, Higher Education 9, K -12 Education 37, Labor and Workforce Development Legislative, Judicial and Executive 2, Natural Resources 1,9 2.1 State and Consumer Services Corrections and Rehabilitation 8, Grand Total 91, Source: California Department of Finance 12

13 ECE Economic Impact // Figure 3 Four Major California General Fund Expenditures as a Percentage of Total Expenditures % (%) % % 4.1% Source: California Department of Finance Health and Human Services Higher Education K-12 Education Corrections and Rehabilitation 41.4% 29.2% 1.3% 9.7% THE FUNDING FOR EARLY CHILDHOOD EDUCATION IN CALIFORNIA Over the past several years, we have seen California cut its funding on ECE substantially in both absolute and relative ways. As shown in Table 2, total state funding for child care, development, and education has decreased from $2.6 billion in 28-9, to $1.92 billion in 29-1, to $1.63 billion in 21-11, to $1.45 billion in , and to $1.25 billion in That is, over the past four years, child care and education funding from the state has plunged by 39%. The budget cuts the total funding for ECE by $185 million, or 8.4% from , which are all funded by the state. Does the funding cut for ECE simply reflect an acrossthe-board budget cut facing the continued budget deficits after the Great Recession? The answer is NO. As Table 2 California Child Care, Development, and Education Budget Summary (Millions $) Funding 3,183 3,11 2,812 2,385 2,199 Total State Funds 2,57 1,922 1,633 1,445 1,252 State General Funds (Prop. 98) 1,69 1,827 1, Other State General Funds , Federal Funds 1,126 1,179 1, Expenditures 3,183 3,11 2,812 2,385 2,199 CalWORKs Child Care 1,539 1,436 1,232 1, Non -CalWORKs Child Care 1,19 1,118 1, Preschool Support Programs Sources: The Legislative Analyst s Office s (LAO) California Spending Plan for 21-11, , First 5 LA UCLA Anderson Forecast // October

14 The Economic Impact of Early Childhood Education Figure 4 California Child Care, Development, and Education Funding as a Percentage of Total State General Fund Expenditures 3. (%) Source: California Department of Finance and LAO California Spending Plan indicated in Figure 1, over the past four years, the state budget increased slightly from $9.9 billion in 28-9 to $91.3 billion in It we analyze the state child care and education expenditure as a percentage of the whole state general fund expenditures, we find that ECE received a disproportionate spending cut. From 28-9 to , its spending share has steadily declined from 2.26% in 28-9 to 1.37% in as displayed in Figure 4. THE LONG-TERM ECONOMIC BENEFIT FOR EARLY CHILDHOOD EDUCATION sense that one dollar of intervention could be more likely to succeed when he or she is at age 4 than when he or she is 16 and dropping out of high school or when he or she is 25 and staying in jail. Nobel Laureate of Economics James Heckman (212) provides a summary of the importance and the benefits of ECE. Heckman et al. (21) carefully recalculate the return of the HighScope Perry Preschool Program and conclude that the overall annual social rate of return is in the range of 7-1%. In other words, each dollar invested at age 4, compounded through age 65, yields a return of 62 to 33 dollars. If assuming a 3% discount rate and the deadweight costs of taxes, each dollar invested returns 7 to 12 dollars back to society. Note that the mean return for the stock market is 5.8% in postwar U.S. Compared to the volatile stock market investment, ECE investment is highly profitable and could enhance social mobility. THE SHORT-TERM ECONOMIC IMPACT OF BUDGET CUT ON EARLY CHILDHOOD EDUCATION IN CALIFORNIA Regardless of long-term benefits and profits of ECE investment, the direct economic impact of the budget cut on ECE is twofold in the short run. The first dimension to consider is a reduction in the ECE workforce. The second is the reduction of child care slots. Here we discuss the economic impact on California and Los Angeles County. ECE WORKFORCE When a family is in financial distress, a rational family will cut those spending items that are less crucial to their members. When a company is suffering a loss, a smart company will shrink its sectors that are the least profitable. Faced with the budget deficit, a government should follow the same rule of thumb of cost-benefit analysis. Since California has been slashing its ECE funding, does that mean that ECE is the least crucial and the least profitable item among all the public affairs? The answer is NO. On the contrary, evidence of economic benefit for investing in ECE is conclusive and significant based on its long-term sizable private and social returns. What s more, investing in ECE is not only one of the most efficient public investments for promoting economic growth, but also it is arguably the best policy to narrow the inequality gap and to achieve a shared prosperity. Why? Because public ECE investments usually target those at-risk children and the returns from these disadvantaged children are usually highest. For a child living in an at-risk family, it should be common Figure 5 illuminates the ECE workforces (child care services, not including preschool teachers) change from 2 for the U.S., California, and Los Angeles County. From July 2 to July 212, the payroll employment of child day care services in the U.S. has increased 21.3%, yet it has only increased 1.2% in California, and only 2.8% in L.A. The stunning difference between California and the nation clearly stems from the period. While the nation s ECE workforce remained intact, California s ECE workforce has been battered due to the ECE budget punch. From January 28 to July 212, California has lost 4,36 child care workers and L.A. has cut 1,36 child care workers. Again, one might argue that the dismal ECE workforce development over the past few years in California simply reflects a reality of a worse recession and recovery in California than in the nation. Figure 6 presents the ratio: the employment of the child day care workforce as a percentage of the total nonfarm payrolls in the U.S., California, and L.A. 14

15 ECE Economic Impact // Figure 5 Payroll Employments of Child Day Care Services U.S The ratios for these three regions did not change much over the past several years. In other words, the drop of the ECE workforce is as serious as other sector workers in California. But note that, the percentages of the ECE workforce in L.A. and California are about.41 and.43 respectively while that percentage in the U.S. is.62. Figure 6 Payroll Employments of Child Day Care Services as a Percentage of the Total Nonfarm Payroll Employments.7 (%) California Los Angeles U.S. California L.A. Sources: California Department of Employment Development and Bureau of Labor Statistics In addition to the payroll employment data mentioned above based on Current Employment Statistics (CES) from the Bureau of Labor Statistics (BLS), we also examine the Occupational Employment Statistics (OES) from BLS in order to learn more about wage information. In OES, we will also be able to identify the employment for preschool teachers, which cannot be separated from CES Sources: California Department of Employment Development and Bureau of Labor Statistics Table 3 displays the employment and annual median wage data for the U.S., California, and Los Angeles County from May 27 to May 211. We find that the employment for preschool teachers declined while their median wages increased in the U.S., California, and L.A. For child care workers, the employment number and wages both increased in the U.S., California, and L.A. Note that the numbers of child care workers here are different from those in Figure 5, in which child care worker employments are declining. The reason could be that the numbers in Figure 5 are all payroll numbers while the numbers in Table 3 include self-employed child care workers. First 5 LA UCLA Anderson Forecast // October

16 The Economic Impact of Early Childhood Education Table 3 Employment and Wage for ECE and Correctional Officials and Jailers Employment (Thousands) Annual Median Wage ($) % Change % Change Preschool U.S % 23,13 26, % California ,88 29, L.A ,24 34, Child Care Workers U.S ,35 19, California , 23, L.A ,5 23, Correctional Officials and Jailers U.S ,97 38, California ,89 71, L.A. N/A N/A N/A N/A N/A N/A Source: Occupational Employment Statistics from Bureau of Labor Statistics Combing these numbers, we could argue that, due to the budget cut, the number of preschool teachers is declining as well as subsidized/public child care workers, while the private/lower cost child care workers are increasing. After all, working parents cannot let their children be unattended or wander in the streets. With less state funding, that could imply that some of the children are switching from higher-quality ECEs with more educational elements to lower-quality child care centers with fewer educational components. We can see the median wages for preschool teachers in 211 for the U.S. and California are $26,62, and $29,98, respectively, which is not high, while the median wage of child care workers is even lower: $19,43 for the U.S. and $23,18 for California. The higher wage in California (13% to 19%) could be reflecting the higher average personal income and cost of living in California than in the U.S. on average. If we look at the median wage for correctional officials and jailers, we see something harder to explain: this group of workers earns, in 211, $71,93, which is 84% higher than the national average of $38,99. Keep in mind, Figure 3 presents that Corrections and Rehabilitation has a rising trend of expenditure over the past two decades. Therefore, the wage data for California s prison guards reconciles this rising trend, even in this difficult period in our state budget. The question for Californians is: Can we find a better way to allocate our constrained public funds? Is it wise to spend so much more on a prison guard than on a child care worker? ECE ENROLLMENT The ECE budget cut also reduced ECE slots. Table 4 shows the child care maximum enrollment in California from 28-9 to From to , the ECE slots were cut by 26,4, which is 7.7%. From 28-9 to , the slots were slashed by 118,8, or 27%. For Los Angeles County, the losses of ECE were 22, spaces from 28-9 to Table 5 indicates the potential demand and official supply of ECE in California and L.A. It is clear that the current capacity of ECE is not sufficient for the demand of ECE. For the family with one working parent and one stay-at-home parent or for the family with the help of grandparents, ECE might not be needed. But for those single-parent families and low-income families, the ECE subsidy to them is more than necessary. CONCLUSIONS If a government plans to increase competitiveness in order to promote economic growth and mobility, then according to the work by Heckman, investment in early childhood education (ECE) is perhaps the most efficient investment with the highest social return. He found that 16

17 ECE Economic Impact // teaching a four-year-old an appropriate attitude and habit toward oneself, other people and our society will have a tremendous impact on the life of this child. By investing in ECE, the government could potentially, in the long run, save money on special education in K-12, on job retraining, on unemployment benefits, on crime reduction, on prison guards and corrections, on health care spending, on welfare programs, etc. In short, ECE could be a preventive investment as opposed to more expensive remedial programs. Also, to the extent it is effective, ECE would be a predistributive policy rather than a redistributive policy to aim at a shared prosperity (Heckman 212). Nevertheless, the return on ECE would only be realized in the long run. Perhaps this is why we have seen the ECE budget suffering serious cuts over the past few years in California. The paper explores the short-term and long-term economic impacts resulting from the on-going ECE budget cut in California. Its short-term negative impact is straightforward: we have seen the ECE workforce employment decline as well as ECE enrollments. The former directly reduces employment at the time teachers are laid off. As well there is an increase in the financial burden on families with children ages -5. This will exacerbate the chances for low-income parents to find a job, to complete a job retraining program, or to pursue an advanced education. The long-term detrimental impact on California could be substantial. Table 4 Child Care Maximum Enrollment in California Total Maximum Enrollment 435,26 421,268 36,57 342, ,459 CalWORKs Child Care 186,34 17,91 111, ,41 123,91 State Preschool 114, , ,847 99,334 86,834 Other Child Care 134, , ,57 112,124 15,724 Sources: California Child Care Resource & Referral, LAO California Spending Plan Table 5 ECE Potential Demand and Official Supply in California and L.A., 21 ECE Potential Demand California L.A. Children -5 2,531, ,793 Children -5 Living in Poverty 75,84 195,133 Children on Waitlists to Receive a Child Care Subsidy 187,516 29,562 ECE Official Supply Total Slots 1,67, ,254 Licensed Child Care Center Slots 75,77 167,187 Licensed Family Child Care Home Slots 362,636 8,67 Sources: 211 California Child Care Portfolio from California Child Care Resource & Referral; 21 American Community Survey ENDNOTES 1. See the Budget: California Spending Plan from the Legislative Analyst s Office. REFERENCES Heckman, James J. (212). Promoting social mobility. Boston Review, September / October. Heckman, James J., Seong H. Moon, Rodrigo Pinto, Peter A. Savelyev, and Adam Q. Yavitz (21). The rate of return to the HighScope Perry Preschool Program. Journal of Public Economics 94, 1-2: First 5 LA UCLA Anderson Forecast // October

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19 City Human Capital Index // THE FIRST 5 LA/UCLA ANDERSON FORECAST CITY HUMAN CAPITAL INDEX William Yu Economist, UCLA Anderson Forecast October 212 The UCLA Anderson Forecast is partnering with First 5 LA to create an index to measure and understand the current state of human capital in each metropolitan area and each county across the nation. The First 5 LA/ UCLA Anderson Forecast City Human Capital Index 1 is based mainly on the adult resident s education attainment in each city. For those residents below age 25, we use school enrollment to adjust the projection of future education attainment to provide some degree of forward-looking perspective. We use the data from 5-year estimates (26-21) collected by the American Community Survey of the Census Bureau. The methodology of the index is detailed in Appendix 1. The goal of this index is to be a simple barometer for measuring and comparing the level of human capital in each city. As the UCLA Anderson Forecast has always argued 2, current education and workforce development in the U.S. are inadequate for the 21st century. In the past, less educated workers could easily find well-paying jobs in this land of dreams. It is not so anymore! In this highly competitive global economy, foreigners, robots, and computers are taking away jobs, both blue and white collar. This is the core reason of the rising inequality and the sluggish job recovery. The best long-term solution is to improve our youths education in quantity and quality. They must and will be able to use their knowledge and creativity to innovate in technology and business in the future. With the periodical publication and the free access of this index, the public and policymakers will have a clearer picture of their local human capital status and city vibrancy. As a result, especially for those less-educated cities, residents can rethink and reallocate private and public resources in order to enhance their city s competitiveness and rejuvenate their city s growth. This article focuses on the discussions for Los Angeles and other California areas. I believe the children are our future teach them well and let them lead the way show them all the beauty they possess inside give them a sense of pride to make it easier let the children s laughter remind us how we used to be Michael Masser and Linda Creed, The Greatest Love of All, 1977 First 5 LA UCLA Anderson Forecast // October

20 The Economic Impact of Early Childhood Education THE CITY HUMAN CAPITAL INDEX (CHCI) BY METROPOLITAN AREAS Table 1 shows the First 5 LA/UCLA City Human Capital Index (CHCI) for the top ten, the middle ten (around the Los Angeles metro area), and the bottom ten cities among 942 metropolitan and micropolitan statistical areas in the U.S. The interpretation of the CHCI is straightforward. One-tenth of the index number will be the average schooling years of the residents in this area. For example, the number one city, Los Alamos, has a CHCI of That said, the average education attainment in Los Alamos is schooling years, which is close to obtaining a bachelor s degree. Note that in our CHCI calculation, a high school graduate is measured as 12 schooling years, an associate s degree is measured as 14 schooling years, a bachelor s degree is measured as 16 years, and a graduate or professional degree is counted as 18 years (see Appendix 1). Take a look at the top ten cities with the highest CHCIs in Table 1. All of them are small or mid-sized college towns or they have a special research center. Los Alamos has Los Alamos National Laboratory as a major employer. Ithaca is home to Cornell University. Boulder is the home of the University of Colorado, Pullman: Washington State University, Ann Arbor: University of Michigan, Lawrence: University of Kansas, Ames: Iowa State University, Corvallis: Oregon State University, Laramie: University of Wyoming, and Iowa City: University of Iowa. The CHCI in the Los Angeles metropolitan area (including Los Angeles and Orange Counties) is This number means that the average number of schooling years in L.A. is 12.66, which is 2.8 years lower than the number one city, Los Alamos. The bottom 1 cities with the lowest CHCs are striking in terms of their low human capital level: from 11.5 years to 9.93 years. All of these 1 cities are located in Texas (8 cities) and Florida (2 cities). And five of these Texas cities are along the border between the U.S. and Mexico. It can sometimes be misleading to compare a colossal metro area, e.g. L.A. with a population of 12 million, to a small college town, e.g. Ithaca with only 1, residents. Therefore, we have controlled the city size and rank their human capital level against cities of similar size. Figure 1 First 5 LA/UCLA City Human Capital Index for the 3 Largest Cities in the U.S Washington DC Boston San Francisco Minneapolis Seattle Denver Baltimore Portland Kansas City Philadelphia Pittsburgh Atlanta San Diego St. Louis New York Chicago Sacramento Cincinnati Detroit Cleveland Orlando Tampa Phoenix Dallas Miami San Antonio Los Angeles Houston Las Vegas Riverside Source: Author s calculation based on the 5-year American Community Survey,

21 City Human Capital Index // Table 1 First 5 LA/UCLA City Human Capital Index Ranking for All Metro Areas Rank All Metro Areas CHCI Population 1 Los Alamos, NM Micro Area ,91 2 Ithaca, NY Metro Area ,612 3 Boulder, CO Metro Area ,177 4 Pullman, WA Micro Area ,747 5 Ann Arbor, MI Metro Area ,947 6 Lawrence, KS Metro Area ,52 7 Ames, IA Metro Area ,594 8 Corvallis, OR Metro Area ,158 9 Laramie, WY Micro Area ,926 1 Iowa City, IA Metro Area , Galesburg, IL Micro Area , Kokomo, IN Metro Area , Huntington, IN Micro Area , Sherman-Denison, TX Metro Area , Los Angeles-Long Beach-Santa Ana, CA Metro Area ,723, Las Vegas, NM Micro Area , Houston-Sugar Land-Baytown, TX Metro Area ,79, Wichita Falls, TX Metro Area , Albany-Lebanon, OR Micro Area , Lima, OH Metro Area , Hereford, TX Micro Area , Brownsville-Harlingen, TX Metro Area , Lamesa, TX Micro Area , McAllen-Edinburg-Mission, TX Metro Area , Clewiston, FL Micro Area ,3 938 Eagle Pass, TX Micro Area , Raymondville, TX Micro Area , Wauchula, FL Micro Area , Pecos, TX Micro Area , Rio Grande City-Roma, TX Micro Area ,989 Source: Author s calculation based on the 5-year American Community Survey, Note: Total number of cities is 955. But 13 cities do not have sufficient data to calculate the CHCI. First 5 LA UCLA Anderson Forecast // October

22 The Economic Impact of Early Childhood Education The CHCI Ranking Among the 3 Largest Metro Areas First, let s take a look at the human capital among the 3 Table 2 First 5 LA/UCLA City Human Capital Index for the 3 Largest Cities in the U.S. largest metro areas (for those cities with populations over 1.8 million). Table 2 displays the human capital ranking Rank 3 Largest Metro Areas CHCI Population 1 Washington-Arlington-Alexandria, DC-VA-MD-WV Metro Area ,416,691 2 Boston-Cambridge-Quincy, MA-NH Metro Area ,489,25 3 San Francisco-Oakland-Fremont, CA Metro Area ,244,889 4 Minneapolis-St. Paul-Bloomington, MN-WI Metro Area ,229,181 5 Seattle-Tacoma-Bellevue, WA Metro Area ,356,89 6 Denver-Aurora-Broomfield, CO Metro Area ,464,415 7 Baltimore-Towson, MD Metro Area ,683,16 8 Portland-Vancouver-Hillsboro, OR-WA Metro Area ,17,81 9 Kansas City, MO-KS Metro Area ,999,718 1 Philadelphia-Camden-Wilmington, PA-NJ-DE-MD Metro Area ,911, Pittsburgh, PA Metro Area ,358, Atlanta-Sandy Springs-Marietta, GA Metro Area ,125, San Diego-Carlsbad-San Marcos, CA Metro Area ,22, St. Louis, MO-IL Metro Area ,792,39 15 New York-Northern New Jersey-Long Island, NY-NJ-PA Metro Area ,7, Chicago-Joliet-Naperville, IL-IN-WI Metro Area ,384, Sacramento--Arden-Arcade--Roseville, CA Metro Area ,17,92 18 Cincinnati-Middletown, OH-KY-IN Metro Area ,11, Detroit-Warren-Livonia, MI Metro Area ,345,978 2 Cleveland-Elyria-Mentor, OH Metro Area ,86, Orlando-Kissimmee-Sanford, FL Metro Area ,83, Tampa-St. Petersburg-Clearwater, FL Metro Area ,745,35 23 Phoenix-Mesa-Glendale, AZ Metro Area ,8,77 24 Dallas-Fort Worth-Arlington, TX Metro Area ,154, Miami-Fort Lauderdale-Pompano Beach, FL Metro Area ,478, San Antonio-New Braunfels, TX Metro Area ,57, Los Angeles-Long Beach-Santa Ana, CA Metro Area ,723, Houston-Sugar Land-Baytown, TX Metro Area ,79, Las Vegas-Paradise, NV Metro Area ,895,521 3 Riverside-San Bernardino-Ontario, CA Metro Area ,114,751 Source: Author s calculation based on the 5-year American Community Survey,

23 City Human Capital Index // for the 3 largest cities in the U.S. Washington DC is ranked number one with a CHCI of 14.5 (14 schooling years), followed by Boston, San Francisco, Minneapolis, and Seattle. The largest metro New York comes in 15th with a CHCI of 132.4, followed by the third largest metro Chicago with a CHCI of And the second largest metro L.A. ranks as 27th with a CHCI of L.A. trails Atlanta, San Diego, Sacramento, Detroit, Phoenix, Dallas, Miami, etc. Among the 3 largest cities, only three metros lag behind L.A.: Houston, Las Vegas, and Riverside (Inland Empire). Figure 1 provides a graphic output for Table 2. THE CHCI RANKING AMONG THE 5 LARGEST METRO AREAS If we rank the CHCIs of the 5 largest metro areas (for those cities whose population is above 1 million) as shown in Table 3, L.A. is still number 4 from the bottom, trailed by the same lagging cities: Houston, Las Vegas, and the Inland Empire. In the new top-1 list, we can see some smaller cities getting on it. For example, San Jose (Silicon Valley) ranks number 5 with a CHCI of 137.3, and Austin ranks number 9 with a CHCI of 135. Table 3 First 5 LA/UCLA City Human Capital Index for the 5 Largest Cities in the U.S. Rank 5 Largest Metro Areas CHCI Population 1 Washington-Arlington-Alexandria, DC-VA-MD-WV Metro Area ,416,691 2 Boston-Cambridge-Quincy, MA-NH Metro Area ,489,25 3 Raleigh-Cary, NC Metro Area ,69,694 4 San Francisco-Oakland-Fremont, CA Metro Area ,244,889 5 San Jose-Sunnyvale-Santa Clara, CA Metro Area ,793,888 6 Minneapolis-St. Paul-Bloomington, MN-WI Metro Area ,229,181 7 Seattle-Tacoma-Bellevue, WA Metro Area ,356,89 8 Denver-Aurora-Broomfield, CO Metro Area ,464,415 9 Austin-Round Rock-San Marcos, TX Metro Area ,627,571 1 Hartford-West Hartford-East Hartford, CT Metro Area ,23, Dallas-Fort Worth-Arlington, TX Metro Area ,154, Providence-New Bedford-Fall River, RI-MA Metro Area ,62, New Orleans-Metairie-Kenner, LA Metro Area ,15,2 44 Miami-Fort Lauderdale-Pompano Beach, FL Metro Area ,478, Memphis, TN-MS-AR Metro Area ,31, San Antonio-New Braunfels, TX Metro Area ,57, Los Angeles-Long Beach-Santa Ana, CA Metro Area ,723, Houston-Sugar Land-Baytown, TX Metro Area ,79, Las Vegas-Paradise, NV Metro Area ,895,521 5 Riverside-San Bernardino-Ontario, CA Metro Area ,114,751 Source: Author s calculation based on the 5-year American Community Survey, First 5 LA UCLA Anderson Forecast // October

24 The Economic Impact of Early Childhood Education THE CHCI RANKING AMONG THE 1 LARGEST METRO AREAS If we rank the CHCIs of the 1 largest metro areas (for those cities whose population is above.5 million), L.A. is the 89th, trailed additionally by some California inland cities, i.e. Stockton, Modesto, Fresno, and Bakersfield as shown in Table 4. In this new top-1 list, it is very similar to Table 3. Appendix 2 presents the full list of the 1 largest cities with their CHCIs and Appendix 3 displays the full list of the 2 largest cities. Combining Tables 2, 3, and 4, we can conclude that the L.A. metro is not competitive in its human capital level. Table 4 First 5 LA/UCLA City Human Capital Index Ranking for the 1 Largest Cities in the U.S. THE CITY HUMAN CAPITAL INDEX AT COUNTY LEVELS Now, let s take a look at the human capital index based on the county level as shown in Table 5. In this way, we can separate Los Angeles County and Orange County. The number one is Falls Church City (county level) in Virginia with a CHCI of followed by Los Alamos County, New Mexico with a CHCI of 154.5, similar to its metro ranking status. Los Angeles County s CHCI is 124.8, which is lower than L.A. metro s (including Orange County) It implies that Orange County s CHCI is much higher than The bottom ten counties Rank 1 Largest Metro Areas CHCI Population 1 Washington-Arlington-Alexandria, DC-VA-MD-WV Metro Area ,416,691 2 Madison, WI Metro Area ,744 3 Boston-Cambridge-Quincy, MA-NH Metro Area ,489,25 4 Bridgeport-Stamford-Norwalk, CT Metro Area ,342 5 Raleigh-Cary, NC Metro Area ,69,694 6 San Francisco-Oakland-Fremont, CA Metro Area ,244,889 7 San Jose-Sunnyvale-Santa Clara, CA Metro Area ,793,888 8 Minneapolis-St. Paul-Bloomington, MN-WI Metro Area ,229,181 9 Colorado Springs, CO Metro Area ,89 1 Seattle-Tacoma-Bellevue, WA Metro Area ,356,89 89 Los Angeles-Long Beach-Santa Ana, CA Metro Area ,723, Las Vegas-Paradise, NV Metro Area ,895, Lancaster, PA Metro Area ,25 93 Lakeland-Winter Haven, FL Metro Area , Riverside-San Bernardino-Ontario, CA Metro Area ,114, Stockton, CA Metro Area , Modesto, CA Metro Area , Fresno, CA Metro Area ,83 98 El Paso, TX Metro Area ,28 99 Bakersfield-Delano, CA Metro Area ,693 1 McAllen-Edinburg-Mission, TX Metro Area ,973 Source: Author s calculation based on the 5-year American Community Survey,

25 City Human Capital Index // Table 5 First 5 LA/UCLA City Human Capital Index for All Counties Rank All Counties CHCI Population 1 Falls Church City, Virginia ,465 2 Los Alamos County, New Mexico ,91 3 Arlington County, Virginia ,467 4 Howard County, Maryland ,366 5 Pitkin County, Colorado ,389 6 Tompkins County, New York ,612 7 Boulder County, Colorado ,177 8 Douglas County, Colorado ,44 9 Johnson County, Iowa ,994 1 Whitman County, Washington , Monroe County, Wisconsin , Dodge County, Wisconsin , Cheyenne County, Kansas , Belmont County, Ohio , Los Angeles County, California ,758, Lewis County, New York , Audubon County, Iowa , Houston County, Alabama , Marion County, Missouri , Sumter County, South Carolina , Hardee County, Florida , Brooks County, Texas , Gaines County, Texas , Reeves County, Texas , Zapata County, Texas , LaGrange County, Indiana , Hudspeth County, Texas 1.9 3, Presidio County, Texas 1.2 7, Starr County, Texas , Holmes County, Ohio ,68 Source: Author s calculation based on the 5-year American Community Survey, Note: Total number of counties is 3,143. But 5 counties do not have sufficient data to calculate the CHCI. First 5 LA UCLA Anderson Forecast // October

26 The Economic Impact of Early Childhood Education Figure 2 First 5 LA/UCLA City Human Capital Index Map for Counties in the U.S. Source: Author s calculation from the 5-year American Community Survey, Note: The darker the color in each county, the higher the CHCI is. are again mostly located in the Texas area with CHCI levels ranging from 13.8 to Figure 2 displays the human capital level in the geographical output for the whole nation. The darker the color in each county, the higher the CHCI is. The South and Texas tend to have lower levels of human capital compared to other parts of the nation. Again, if we only look at the 3 largest counties, in which the population ranges from 1.2 million to the 9.8 million of Los Angeles County, the result of the CHCI ranking is shown in Table 6. L.A. County, as the largest county in the U.S., ranks 24th among 3, which is only slightly better than its metro ranking. 26

27 City Human Capital Index // Table 6 First 5 LA/UCLA City Human Capital Index Rank 3 largest Counties CHCI Population 1 Middlesex County, Massachusetts ,479,491 2 New York County, New York ,583,345 3 King County, Washington ,879,189 4 Nassau County, New York ,329,83 5 Santa Clara County, California ,739,396 6 Allegheny County, Pennsylvania ,223,66 7 Alameda County, California ,477,98 8 Suffolk County, New York ,482,548 9 San Diego County, California ,22,468 1 Orange County, California ,965, Palm Beach County, Florida ,299, Broward County, Florida ,734, Cuyahoga County, Ohio ,293, Cook County, Illinois ,172, Sacramento County, California ,395, Maricopa County, Arizona 13. 3,751,41 17 Tarrant County, Texas ,743,3 18 Queens County, New York ,199, Bexar County, Texas ,65,52 2 Wayne County, Michigan ,87, Philadelphia County, Pennsylvania ,54,95 22 Kings County, New York ,466, Clark County, Nevada ,895, Los Angeles County, California ,758, Harris County, Texas ,95, Miami-Dade County, Florida ,445, Dallas County, Texas ,321,14 28 Riverside County, California ,19, San Bernardino County, California ,5,287 3 Bronx County, New York ,365,725 Source: Author s calculation based on the 5-year American Community Survey, First 5 LA UCLA Anderson Forecast // October

28 The Economic Impact of Early Childhood Education THE CHCI RANKING IN CALIFORNIA COUNTIES Let s focus on the CHCI in California at the county level. Figure 3 illustrates the ranking. Marin County (CHCI: 144.4) is the first, San Francisco (CHCI: 139.9) is the second, San Mateo (CHCI: 138.3) is the third, and Santa Clara (CHCI: 137.9) is the fourth, all of which are around the Bay Area. L.A. County is ranked 38th among 58 counties. Figure 4 depicts the human capital level in the geographical output in California. The central valley, with an economic focus on agriculture, and Imperial County appear to have the lowest human capital levels. The UCLA Anderson Forecast 3 has presented evidence of the uneven recovery between inland and coastal California. In addition to the disproportionate dependence on the housing market in inland California, we believe that the relative lower level of the CHCI in inland California is another attribute to its anemic economic and employment recovery. Figure 4 First 5 LA/UCLA City Human Capital Index Map for Counties in California Source: Author s calculation based on the 5-year American Community Survey, Figure 3 First 5 LA/UCLA City Human Capital Index Ranking for Counties in California Marin San Francisco San Mateo Santa Clara Placer Nevada Alpine El Dorado Contra Costa Yolo Alameda San Luis Obispo Santa Cruz Mono San Diego Humboldt Orange Sonoma Butte Plumas Siskiyou Mariposa Sacramento Shasta Calaveras Trinity Ventura Solano Inyo Tuolumne Amador Santa Barbara Napa Sierra Mendocino Lake Modoc Los Angeles Del Norte Riverside San Bernardino Sutter Lassen Tehama San Joaquin Yuba Stanislaus Fresno Monterey San Benito Glenn Kern Kings Madera Colusa Merced Tulare Imperial Source: Author s calculation based on the 5-year American Community Survey,

29 City Human Capital Index // THE DISTRIBUTION OF HUMAN CAPITAL LEVELS Figure 5 The Distribution of Education Attainment for Residents above 25 Years Old in Selected Counties and Metropolitan Areas The First 5 LA/UCLA City Human Capital Index is based on the average level of all residents in the area for simplicity and comparability. To understand how the human capital level is distributed, Figure 5 illustrates the percentage distribution of adult residents (above age 25) for major counties in California and major metropolitan areas in the rest of the nation. Los Angeles County San Francisco County In each graph, the left seven columns represent the percentage of each category of education attainments (1: less than 9th grade; 2: 9th to 12th grade, 3: High school graduate; 4: Some college without degree; 5: Associate s degree; 6: Bachelor s degree; 7: Graduate or professional degree). The right column denotes the average education attainment for that area. Compared with other major cities, it is clear that L.A. has a larger proportion of lesseducated residents. For example, for Category 1 (less than 9th grade) and Category 2 (9th to 12th grade), the percentage is 13.9% and 1.2%, respectively. No other cities in Figure 5 have more than 1% of their residents in these categories. When a city has more less-educated residents, it naturally will have fewer high-educated residents. For instance, for Category 6 (bachelor s degree) and Category 7 (graduate or professional degree), L.A. has only 19% and 9.9%, respectively. By contrast, San Francisco County and Santa Clara County have above 2% residents or so with higher human capital. In summary, it is evident that the human capital level in L.A. is lagging behind other major cities in California and in the nation. Santa Clara County Orange County Atlanta Metro Chicago Metro San Diego County Washington DC Metro New York Metro Dallas Metro 3 2 THE ASSOCIATION BETWEEN THE CHCI AND ECONOMIC PERFORMANCES One might wonder whether differences between cities in the CHCI statistics really matter. For example, L.A. s CHCI is and San Diego s CHCI is 132.9, resulting in an 8.1 disparity. It implies that, on average, L.A. s human capital level is.81 of a year lower than San Diego. Does this have any significant economic consequence? The labor economic literature has provided well-known evidence: the rule of thumb is that each additional schooling year for an individual will increase one s wage by 1% after carefully controlling a list of social-economic variables. In other words, the higher human capital causes the higher income because of the enhanced productivity. 1: Less than 9th grade 2: 9th to 12th grade, no diploma 3: High school graduate, includes GED 4: Some college, no degree 5: Associate s degree 6: Bachelor s degree 7: Graduate of professional degree 8: Education attainment average Source: Author s calculation based on the 5-year American Community Survey, First 5 LA UCLA Anderson Forecast // October

30 The Economic Impact of Early Childhood Education The income and benefit per capita in L.A. on average from 26 to 21 is $27,344 per year. By contrast, the income per capita in Orange County and San Diego are $34,17 and $3,715, respectively. What accounts for the differences among these three Southern California counties? One of the reasons would be human capital. According to the above labor economic estimate, if L.A. s CHCI could improve by 1 (gaining one year education attainment) to the proximate level of San Diego s, L.A. s income could be predicted to increase by $2,734, in general, to $3,. This translates directly to an increase of $27 billion for the whole of L.A. County s personal income! Here, we apply this rule of thumb of micro evidence onto macro/regional data to see if the individual evidence could explain the cross-sectional difference. We conduct a simple ordinary least squared regression based on our sample of 3,138 counties across the nation, in which the dependent variable is the county s average income and benefit per capita (in 21 dollar) and the independent variable is each county s CHCI. The result is highly significant: we find that a 1-point increase of CHCI (one additional schooling year) will predict an increase of $5,86 per person per year on average in that county. Our cross-sectional estimate here is higher than the labor economic evidence mentioned above. That is because we do not control other variables. For example, we could see different causality in play: a city/ county with a higher income will be more likely to invest more on education. Nevertheless, our result definitely supports the conventional economic wisdom. Figure 6 illuminates the same concept: with CHCI increases from 1 to 14 across counties, we can see their income per capita enhances from $1, to $35,. We also conduct the same ordinary least squared regression based on our sample for 942 metro and micro cities across the nation, in which the dependent variable is the city s average income and benefit per capita (in 21 dollar) and the independent variable is each city s CHCI. The result is similar to the county s: we find that a 1-point increase of CHCI (one additional schooling year) will predict an increase of $5,124 per person on average in that county. Figure 7 illuminates the same concept: with a CHCI increase from 1 to 14 across counties, we can see their income per capita enhances from $1, to $3,. The CHCI is correlated to its local unemployment rate. It is well known that the unemployment rate is higher for less-educated workers and is lower for higher-educated workers. Again, we conduct a simple ordinary least squared regression based on our sample for 3,138 counties and 942 cities across the nation, in which the dependent variable is the county (city) s average unemployment rate in 26 to 21 and the independent variable is each county (city) s CHCI. Figure 6 The Correlation between the First 5 LA/UCLA CHCI and the Income per Capita Across Counties in the U.S. Figure 7 The Correlation Between the First 5 LA/UCLA CHCI and the Income per Capita Across Cities in the U.S. 7, (21$) 6, 5, (21$) 4, INCOME per Capita 5, 4, 3, 2, Income per Capita 3, 2, 1, 1, City Human Capital Index City Human Capital Index Source: Author s calculation based on 3,138 counties from the 5-year American Community Survey, Source: Author s calculation based on 942 metro and micro cities from a 5-year American Community Survey,