Saturday, March 19, 2011

Breaking the Intergenerational Poverty Cycle

James J. Heckman, Henry Schultz Distinguished Service Professor of Economics, University of Chicago, has posted an important observation at, entitled A post-racial strategy for improving skills to promote equality, While it chiefly addresses inequality and the cycle of poverty and underachievement, this post has direct bearing on employment, too, since poverty increases the number of chronically unemployed, a structural problem.

The chief finding that Prof. Heckman cites is one showing that "supplementing the early years of disadvantaged children addresses a major source of inequality."

An example is the Perry preschool programme that targeted disadvantaged, subnormal IQ African American preschoolers just outside Detroit. For two years, the programme taught children to plan, execute, and evaluate daily projects in a structured setting. It fostered social skills. There were weekly home visits to encourage parenting. The Perry programme was evaluated using random assignment with long-term follow-up for 40 years. Rates of return are 7%-10% per annum – higher than the return on equity over the post-war period 1945-2008 and before the recent market meltdown (Heckman et al. 2010).

Just as it is a mistake to conclude that current employment is structural (insufficient skills) rather than cyclical (insufficient jobs), so too, it would also be a mistake to conclude that all employment is cyclical rather than some of it structural. The structural unemployment due intergenerational poverty results in successive generations lost to poverty, hopelessness, and often crime, with no break in this destructive cycle foreseeable. This is a problem that not only destroys lives, but also constitutes a negative externality affecting society, involving both economic cost and social drag.

Prof. Heckman notes that the current approach is generally remedial — trying to fix the problem when it is already visible. He holds that this is a failed approach in this case, because it is too little, too late, and too expensive — often involving repeated incarceration. The efficient approach to address the problem in the womb, through a healthy pregnancy and gestation, and immediately afterward through early childhood upbringing and education. To be effective, the issue must be addressed in the formative years.

Public policy to promote skills has to reckon with three essential truths distilled from a large body of research conducted in the wake of the War on Poverty.

First, the skills needed for success in life are many. Success requires more than just being smart. Soft skills are important. Conscientiousness, perseverance, sociability, and other character traits matter a lot, even though they are largely neglected in devising policies to reduce inequality.

Second, skill formation is a dynamic, synergistic process. Skills beget skills. They foster and promote each other. A perseverant child open to experience learns more. Early success fosters later success. Advantages cumulate. Young children are flexible and adaptable in ways that adolescents and adults are not. It is much easier to prevent deficits from arising in the early years than to remediate them later.

Third, families play an essential role in shaping the skills of their children. Skill formation starts in the womb. The early years of a child’s life before the child enters school lay the foundation for all that follows. Large gaps in abilities between the advantaged and the disadvantaged open up early – before children enter school.

MMT reveals that where resources are available, government is able to afford them. Prof. Heckman doesn't seem to realize this and proposes private and charitable solutions. However, this is not an area in which the private sector can easily turn a profit, and it is unreasonable to expect that charitable institutions have the required resources for an undertaking of this scope.

This is a fecund area for public investment in human resources that would not only reduce inequality and poverty, breaking a vicious cycle, but also yield a substantial return economically, both through enhanced contributions and in terms of reducing negative externalities. Of course, the government itself would only have to fund the programs and they could be administered through non-profits, using public service employees participating in the job guarantee, which would provide the needed training at the base wage. As skills improved and experience was gained, these employees could be hired up in the service organization or enter the private sector in comparable work.

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