HUMAN CAPITAL PRODUCTION WITH PARENTAL TIME INVESTMENT IN EARLY CHILDHOOD

Abstract

This paper considers parental time investment in early childhood as an education input and investigates its relationships with other inputs in their contribution to human capital. I develop a 12-period overlapping generations model where human capital formation is a multistage process. The model is calibrated to the US economy so that the generated data matches patterns in parental education spending and child care time. The estimation results show that time input is complementary to education expenditure. I apply the model by implementing three early education policies. The first two involve more government spending and the third is paid parental leave. The policy experiments show that adopting paid parental leave is the most costly means of increasing human capital. An education subsidy is more effective than a direct increase in government spending at promoting human capital; however, its impact on earnings inequality and persistence is smaller.