Latest / The Productivity Podcast with Fexingo: Output, Efficiency, and Long-Term Economic Growth / The Perry Preschool Project and Long-Term Productivity
Transcript
- Lucas: In 1962, a small group of researchers in Ypsilanti, Michigan started an experiment. They randomly assigned 123 low-income African-American children to either a high-quality preschool program or no preschool at all. Then they followed them for forty years. Luna: That's the famous Perry Preschool Project. I've heard the headlines — something about huge returns — but what exactly did they find? Lucas: The headline is that every dollar invested returned somewhere between seven and twelve dollars to society. Not just in higher earnings for the participants, but in reduced crime, better health, and less welfare dependence. Luna: Seven to one is a massive ROI. How did they get that number? Lucas: They tracked the kids into their forties. The preschool group had significantly higher high school graduation rates — 65 percent versus 45 percent for the control group. Their median annual earnings were about $20,000 higher. But the biggest savings came from crime. The control group had five times as many arrests for serious crimes as the preschool group. Luna: So the productivity gain is partly from keeping people out of the criminal justice system. That's a different kind of productivity than we usually talk about. Lucas: Exactly. When we think about productivity, we often focus on output per hour at work. But the Perry study shows that productivity can also mean a society where more people contribute positively and fewer drain resources. That's a broader view of economic efficiency. Luna: And the program itself was small — just 58 kids in the treatment group. Can we scale that up? Lucas: That's the billion-dollar question. The program was incredibly intensive: low teacher to student ratios, home visits, parent involvement. Replicating that quality at scale is expensive. But studies of larger Head Start programs show smaller but still positive effects. So the debate is about the optimal investment. Luna: So it's not just 'preschool works', it's 'this specific high-quality preschool works'. That's a nuance that often gets lost. Lucas: Right. And that's where the productivity economics comes in. The Nobel laureate James Heckman did a lot of the cost-benefit analysis on Perry. He argues that the returns are highest for disadvantaged children, and that early investment compounds over time. Luna: Compounds — like compound interest in finance? Lucas: Exactly. Heckman calls it the 'skill begets skill' effect. A child who starts school ready to learn picks up new skills faster, which leads to more investment and higher productivity throughout life. It's a classic example of increasing returns to human capital. Luna: So the productivity payoff isn't immediate. It takes decades to fully realize. Lucas: That's the challenge for policymakers. A politician wants results within an election cycle. But the Perry study shows that the big wins come when those kids are in their twenties and thirties — working, paying taxes, staying out of prison. Luna: And by then, it's too late for that political credit. So the productivity agenda here is really about long-term thinking. Lucas: It is. And that's a theme we keep coming back to on this show — productivity improvements that require patience. We've talked about infrastructure, about R&D, about education. Perry is one of the most concrete examples of a high-return investment that most countries underfund. Luna: Speaking of concrete returns — what about the Abecedarian Project? That's another famous early childhood study, from North Carolina. Lucas: Abecedarian started a bit later, in 1972, and it was even more intensive — full-time, year-round childcare from infancy through age five. The participants were followed into their mid-thirties. The returns were even higher: about thirteen dollars for every dollar invested, with particularly strong effects on health and IQ. Luna: Thirteen to one? That's insane. Why aren't we pouring money into these programs? Lucas: Part of it is upfront cost. High-quality programs cost around fifteen to twenty thousand dollars per child per year. That's a lot for a government budget, even if it pays back over a lifetime. And we're not great at measuring the long-term benefits in annual budget cycles. Luna: So the productivity gain is real, but it's invisible to the people who control the purse strings. Lucas: Exactly. That's a theme in productivity economics — many of the best investments are ones that don't show up in next quarter's numbers. And that's why we do this show: to shine a light on those hidden returns. Lucas: Honestly, if walking through the economy with us has made something click — if today's episode was worth a coffee to you — there's a link at the show notes: buy me a coffee dot com slash fexingo. That's b-u-y-m-e-a-c-o-f-f-e-e dot com slash fexingo. It keeps this ad-free, long-term thinking alive. Luna: Yeah, we don't run sponsors, so listener support is what keeps us going. And it really does make a difference. Lucas: Back to the data. One fascinating detail from the Perry study is that the economic returns were actually higher for girls than for boys. The girls in the program had much higher employment rates and lower crime rates compared to the control group. Luna: Why the difference? Lucas: Researchers think it's partly because boys were more likely to drop out and get involved in crime regardless of preschool, but the program still helped. It's a reminder that these effects aren't uniform across populations. Luna: So if we want to maximize productivity gains, we might need to tailor interventions. Lucas: Precisely. The one-size-fits-all approach rarely works in education or economics. But the core lesson from Perry and Abecedarian is clear: investing in young children, especially those from disadvantaged backgrounds, yields a productivity dividend that lasts a lifetime. Luna: And that's a lesson that applies far beyond the U.S. Are there similar studies in other countries? Lucas: Yes. In Jamaica, a study of a home-visiting program for stunted toddlers found large effects on earnings later in life. In the UK, the Effective Pre-School, Primary and Secondary Education project showed lasting cognitive and social benefits. The pattern is consistent: quality early education boosts long-term productivity. Luna: So it's not just an American phenomenon. It's a human capital phenomenon. Lucas: Exactly. And that brings us back to the big picture: productivity isn't just about machines or software or better supply chains. It's about people. The skills and health and resilience we build early in life compound into workforce productivity decades later. Luna: And that's the kind of productivity growth that can lift an entire economy. Lucas: It is. The Perry Preschool Project is a small experiment, but its implications are enormous. It shows that the returns to investing in human capital are real, measurable, and large. The challenge is having the foresight to act on that knowledge.