One Intervention Is Not Enough: How Continued Human Capital Investments Reduce Inequality
Shehryar Nabi 
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How can we use education investments to reduce economic inequality and break intergenerational cycles of poverty? Research conducted by Rucker C. Johnson and Kirabo Jackson published in the American Economic Journal: Economic Policy suggests that continuous education investments throughout childhood can help narrow gaps in well-being by improving the adult outcomes of children from low-income families.
Importantly, Jackson and Johnson show how a combination of early childhood and K-12 policies improves long-term outcomes by empirically testing the theory of dynamic complementarity. The theory holds that the benefits of human capital skills acquired from one period are augmented by the skills gained from a different period and vice-versa. Dynamic complementarity between skills gained in different periods results in cumulative benefits that exceed the sum of each period’s individual benefits.
The authors examine the effects of two education investments in the United States: the Head Start program and court-ordered school finance reforms (SFRs). Founded in 1964 as part of President Lindon B. Johnson’s War on Poverty, Head Start is a federally-funded yearlong program that provides pre-K childhood education, nutritional information, and parenting skills to low-income families. Beginning in 1971, state supreme courts began issuing SFRs that require school districts to change how public schools are funded, leading many school districts to increase spending on K-12 education.
Jackson and Johnson describe two ways dynamic complementarity works through Head Start and K-12 spending increases. First, higher K-12 spending would raise the standard of education such that Head Start attendees would be more prepared than students who did not attend Head Start. Second, Head Start students themselves would raise the standard of K-12 education by influencing their non-Head Start peers and prompting school systems to improve teaching quality to meet their skill level.
Since Head Start and SFRs were implemented at different times across states and counties in the U.S., Jackson and Johnson had a natural experiment in which they could compare long-term outcomes between areas with similar trends but different degrees of exposure to the policies. Two important questions would determine the effect of dynamic complementarity: 1) How did the effects of Head Start change after being followed up by an SFR-mandated increase in K-12 spending? and 2) How did the effects of K-12 spending change given previous exposure to Head Start?
The authors drew from multiple datasets to construct a sample of 15,232 individuals across 1,120 counties in all 50 states with varying exposure to Head Start and SFRs. Exposure to Head Start was measured by Head Start spending per four-year-old at the county level from 1965 to 1980. Exposure to SFRs was measured through SFR-induced changes in K-12 school funding at the district level per pupil for 1967 and annually from 1970 to 2000. “Poor” children are defined as having parents in the bottom quartile of the income distribution.
Johnson and Jackson then evaluated the combined effects of Head Start and K-12 funding on a variety of outcomes for different levels of spending towards each policy. The first set of outcomes examines educational attainment in high school education and years of education. The second set examines adult (ages 20 to 50) outcomes in wages, incidence of poverty, and incarceration for children born between 1950 and 1976. The authors control for other policies that could have also affected educational attainment and adult outcomes, such as desegregation, Title I, other “War on Poverty” initiatives, and safety net expansion.
The results show that dynamic complementarity makes a significant difference for poor children. Where pupils are exposed to 10 percent increases in K-12 spending, access to Head Start is associated with 0.55 more years of education, a 4.28 percentage point increase in high school graduation, a 7.0 percentage point increase in adult wages, a 4.4 percentage point decrease in the annual incidence of poverty, and a 2.23 percentage point decrease in the likelihood of incarceration compared to pupils subject to no change in K-12 spending. Similar effects were found in a 10 percent increase in K-12 spending given exposure to Head Start. No effect was found for non-poor children.
Jackson and Johnson offer three important takeaways for policymakers. First, the fact that poor children benefit from dynamic complementarity investments and non-poor children experience no effect shows that continuous investment can reduce inequality. Second, negligible long-term returns of educational investments may be due to a lack of follow-up investment. Finally, when considering human capital investments to break intergenerational poverty and reduce inequality, policymakers should incorporate dynamic complementarity to understand the combined effects of different investments over the life cycle.
Johnson, Rucker C., and C. Kirabo Jackson. 2019. “Reducing Inequality through Dynamic Complementarity: Evidence from Head Start and Public School Spending.” American Economic Journal: Economic Policy, 11 (4): 310-49. https://doi.org/10.1257/pol.20180510.
