Abstract
We study the effects of early childhood skill formation on productivity and schooling. We add early childhood human capital to a standard continuous time life cycle economy and assume complementarity between educational stages. Agents are homogenous and choose the intensity of preschool education, how long to stay in formal school, labor effort and consumption. The model is calibrated to the US from 1961 to 2008 and matches the data very well and closely reproduces the paths of schooling, hours worked, relative prices and GDP. We find that early childhood education can explain a large part of the observed increase of years of schooling in the U.S. since 1961, and it was as important as formal education for the increase of labor productivity in the period. Furthermore, we show that small reallocations of public expenditures from formal education to early childhood education would have sizable impacts on income per capita and productivity.
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