Long-run family effects include the environmental factors that shape children's tastes for education, their expectations and their ability. In the early years of life, basic abilities can be altered. Heckman argues that policies improving the environments that shape children's ability early on in their life are likely to be more effective for educational attainment than policies reducing the short-term borrowing constraints faced by individuals at the end of high school. The debate is still open, but the existing evidence suggests that, in most developed economies, increasing spending per pupil or reducing class size have little effect both on educational outcomes, measured by test scores, and on the future earnings of students. Rather than increasing spending over the current levels, school performance can be improved by increasing competition both among public schools and among private and public schools.
Competition is good because it increases the accountability of teachers and the choice of families.
In some countries, test scores measure school performance. A problem with these tests is that they focus excessively on cognitive abilities, and disregard non-cognitive abilities and social skills, which are increasingly important in the labour market. When selection at school is based on cognitive skills, it may provide distorted signals of individual talent to the labour market. Public sector training programmes are largely ineffective in moving people from welfare to work. Rather than spending scarce resources to train old and unskilled displaced workers, it is better to train the young, tax them and pay wage subsidies to the old.