Investing in Our Young People [report]

Flavio Cunha, James Heckman
2010 unpublished
This paper reviews the recent literature on the production of skills of young persons. The literature features the multiplicity of skills that explain success in a variety of life outcomes. Noncognitive skills play a fundamental role in successful lives. The dynamics of skill formation reveal the interplay of cognitive and noncognitive skills, and the presence of critical and sensitive periods in the life-cycle. We discuss the optimal timing of investment over the life-cycle. Abstract This
more » ... Abstract This paper reviews the recent literature on the production of skills of young persons. The literature features the multiplicity of skills that explain success in a variety of life outcomes. Noncognitive skills play a fundamental role in successful lives. The dynamics of skill formation reveal the interplay of cognitive and noncognitive skills, and the presence of critical and sensitive periods in the life-cycle. We discuss the optimal timing of investment over the life-cycle. INVESTING IN OUR YOUNG PEOPLE 2 plement family environments for disadvantaged children. Cunha, Heckman, Lochner, & Masterov (2006), henceforth CHLM, present a comprehensive survey and discussion of this literature. This paper uses a simple economic model of skill formation to organize this and other evidence summarized here and the findings of related literatures in psychology, education, and neuroscience. The existing economic models of child development treat childhood as a single period (see, e.g., Becker & Tomes, 1986; Aiyagari, Greenwood, & Seshadri, 2002; Benabou, 2002) . The implicit assumption in this approach is that inputs into the production of skills at different stages of childhood are perfect substitutes. Instead, we argue that to account for a large body of evidence, it is important to build a model of skill formation with multiple stages of childhood, where inputs at different stages are complements and where there is self-productivity of investment. In addition, to rationalize the evidence, it is important to recognize three distinct credit constraints operating on the family and its children. The first constraint is the inability of a child to choose its parents. This is the fundamental constraint imposed by the accident of birth. Second is the inability of parents to borrow against their children's future income to finance investments in them. The third constraint is the inability of parents to borrow against their own income to finance investments in their children. This paper summarizes findings from the recent literature on child development and presents a model that explains them. A model that is faithful to the evidence must recognize that (a) parental influences are key factors governing child development; (b) early childhood investments must be distinguished from late childhood investments; (c) an equity-efficiency trade-off exists for late investments, but not for early investments; (d) abilities are created, not solely inherited, and are multiple in variety; (e) the traditional ability-skills dichotomy is misleading because both skills and abilities are created; and (f) the "nature versus nurture" distinction is obsolete. These insights change the way we interpret evidence and design policy about investing in children. Point (a) is emphasized in many papers. Point (b) is ignored in models that consider only one period of childhood investment. Points (c), (d), and (e) have received scant attention in the formal literature on child investment. Point (f) is ignored in the literature that partitions the variance of child outcomes into components due to nature and components due to nurture.
doi:10.3386/w16201 fatcat:mimdzesolbfhnmpylxlttg5xvi