Association for Public Policy Analysis & Management

A growing body of benefit-cost analyses (BCAs) of social programs for children has been prompted by the increased demand for results-based accountability when allocating public and private sector resources. Increasing focus has been directed toward understanding the links between early skills and longer-term outcomes and to applying a monetary value to outcomes. Many important benefits that arise from social programs are rarely, if ever, captured in monetary terms in the associated BCAs, or such BCAs are not performed, in part because the economic values are not readily available to express the outcomes that the programs affect in monetary terms. In other cases, BCAs are performed but are not comparable with BCAs in the same or other areas of social policy because different economic values are used.

To help inform the field and move toward valid and consistent use of shadow prices for BCAs of social programs for children and youth, our study reviews the available estimates of the relationship between improvements in cognitive skills during the school-age years and adult earnings. The aim of this paper is to identify valid economic values or "shadow prices" for such outcomes by synthesizing the available estimates in the literature of the relationship between improvements in cognitive outcomes during childhood and adult earnings. 

In particular, this paper will summarize the estimated long-term benefits of cognitive skills gains as measured by percentage changes in adult earnings estimates for a one standard deviation change in a childhood cognitive skills measure. We identified 19 studies published since 1996 using samples of U.S. children and youth that rigorously examined the relationship between cognitive skills and later earnings measures. Cognitive skills were measured at various ages across studies, ranging from age 4 to 18. Cognitive skills measures include AFQT score, IQ, and achievement scores such as Stanford Achievement Test and standardized reading and math scores. Earnings measures include hourly, weekly, or annual wages and earnings measured at ages ranging from 24 to 53, depending on the study. We will summarize groups of studies that include similar cognitive measures and compare the estimated earnings across studies and subgroup populations such as gender and race where available. We will describe the status of economic value estimation in the current literature, identify gaps in knowledge, and discuss implications for where the field should go next in order to provide practical applications for future BCAs of social programs for children and youth.