Estimating the Technology of Children’s Skill Formation

Francesco Agostinelli and Matthew Wiswall

Journal of Political Economy, 2025, vol. 133, issue 3, 846 - 887

Abstract: In this paper, we study the process of children’s skill formation using a dynamic latent factor model to identify key features of the skill production function. We develop and estimate a joint dynamic process for latent investment and skill development, incorporating both static and dynamic complementarities between parental investments and children’s skills in the technology of skill formation. Our analysis of US data reveals that early childhood investments (age 5–6) are highly effective for cognitive skill development, with greater marginal productivity for children with lower existing skills. This suggests that targeting interventions at disadvantaged young children is most beneficial.

Date: 2025
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