America’s Opportunity Youth: Who Are They and What is their Economic Value?



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America’s Opportunity Youth: Who Are They and What is their Economic Value?

Clive R. Belfield

Queens College, City University of New York



Henry M. Levin

William Heard Kilpatrick Professor of Economics and Education

Teachers College, Columbia University

Rachel Rosen

Teachers College, Columbia University


March, 2012


In association with Civic Enterprises with support from the W.K. Kellogg Foundation

Abstract

Many of America’s youth are disconnected from school and the labor market, creating a significant loss of economic opportunity for the nation. Utilizing a comprehensive set of national datasets, for the 16-24 age group we estimate that 6.7 million youths are neither in education nor employed, and thus are not building an economic foundation for adult independence. We estimate that approximately half of this cohort is ‘chronic’, and accrues almost no formal education or work experience between the ages of 16 and 24, while the other half are ‘under-attached’: despite some schooling and some work experience beyond 16 these youth have not progressed to college or secured a stable attachment to the labor market. We estimate that each year, each individual youth in this sub-class imposes, on average and compared to other youth, an immediate taxpayer burden of $13,900 and an immediate social burden of $37,450. After age 25, he or she will subsequently impose a future lifetime taxpayer burden of $170,740 and a social burden of $529,030. Considered over the full lifetime of a youth cohort, the aggregate fiscal burden amounts to $1.56 trillion in present value terms, and the aggregate social burden is $4.75 trillion.


I. Introduction

In the Fall of 2010, President Obama established the White House Council for Community Solutions (WHCCS), which has been charged with finding ways to help solve national problems at the local community level. One of the main priorities of this group has been to help communities move youth onto “critical pathways toward education, employment, and ongoing civic participation.”1 Much of the motivation for this focus comes from the fact that in tough economic times, young people are particularly hard hit by unemployment. For example, in the summer of 2011, the unemployment rate of 16-24 year olds was more than 18 percent, or twice the overall unemployment rate; and for young African-Americans and Hispanics it was 30 percent and 20 percent respectively. At the same time, less than 50 percent of all youth were employed, which represented a 7 percent decline since 2008. Among African-Americans only about a third were employed.

However, youth unemployment is only a part of the problem, as many young people who were not employed were neither looking for a job nor engaged in education or training. Although this phenomenon has long been acknowledged in many other industrialized countries where is has been dubbed the NEET – Not in Education, Employment or Training – challenge, it has gone largely undefined in the United States. For example, in Australia and the United Kingdom, it has been a focus of annual estimates and reports for more than a decade (Foundation for Young Australians, 2010). Among the OECD countries in 2010, it was estimated that almost 13 percent of the population 15-24 were not studying, working, training or seeking employment (OECD, 2010). Yet in the U.S. much less is known about this group. (Bureau of Labor Statistics, 2011).

Originally commissioned as a report for the WHCCS, this study seeks to both define and identify a detailed picture of the size of this group in the U.S., their demographic makeup and activities, and the social and fiscal costs that they present. Particular detail is placed on race and gender as well as the relative absence or intensity of activity. Rather than referring to them as NEET youth, we describe them as ‘opportunity youth’ because society’s inability to capitalize on their potential represents an opportunity missed.

In section two of this paper, we both define and measure the opportunity youth population, using a variety of definitions and national data sources. In section three, we discuss the immediate burdens of the opportunity youth population, including both fiscal and social costs. In section four, we calculate the lifetime costs of opportunity youth. Section five presents the total economic burden of opportunity youth, and section si concludes with discussion of directions for future work, as well as policy solutions, motivated in part by the goals of the WHCCS.



II. Defining and Counting Opportunity Youth

Identifying the opportunity youth phenomenon is not straightforward because youth do not follow simple paths to adulthood. In addition, opportunity youth patterns vary by age, sex, and by race. Although other studies have identified similar ‘disconnected’ or ‘idle’ populations, we believe that these works failed to capture the full scope of youth who are neither working, nor enrolled in school. Previous studies of disconnected youth populations have estimated the size of this youth sub-group at between 8 and 15 percent of the 16-24 year-old population, with higher rates for females, minorities, immigrant youth, and those in urban areas. Rates were also higher for older youth than those still attached to school. Additional estimates from the CRS produce a disconnected youth population of 1.92 million, which is only 5.1 percent of this age group (CRS 2009, Table A-1). However, this estimate is based primarily on youth who are either disabled or family caregivers, and only identifies 0.51 million disconnected youth (or 1.4 percent of all youth) not in either of these two categories. By our estimates, this definition is too narrow to capture the potential for youth to participate more fully in school and work, and this study finds an average opportunity youth population of 6.7 million, or almost 17 percent of the overall youth cohort.

To develop our estimates, we use a range of datasets to identify and estimate the size of the opportunity youth population, including two large-scale datasets. The American Community Survey (ACS) and the Current Population Survey (CPS) primarily yield information on employment and educational activities; and opportunity youth status is determined as the residual population. However, these surveys under-count the at-risk population, especially those who are institutionalized (Schmitt and Baker, 2006). Therefore, we also derive counts from the National Longitudinal Survey of Youth 1997 (NLSY97), the Educational Longitudinal Survey of 2002 (ELS2002), and Add Health.2 These sample surveys contain much more detail on the intensity of work and education undertaken by youth, as well as allow us to track individuals over time in order to identify chronic opportunity youth. We can also disaggregate opportunity youth by race, gender, and age.

Establishing the opportunity youth population is difficult because these young people are defined primarily by what they are not doing. Their classification as a subgroup rests on the absence of engagement in productive activities. Therefore, using the large-scale datasets, we use several approaches to understand the opportunity youth population in relation to its economic potential. The first approach designates youth’s primary activity as either working or enrolled in school/college. Individuals not engaged in either of these activities are defined as opportunity youth. The benefit of this approach is that it mirrors that of prior studies and yields a straightforward count of opportunity youth. However, this method fails to capture how students are balancing work and education, and does not elucidate what opportunity youth are doing with their time.

Therefore, our second approach utilizes the sample surveys to account for individuals’ time in work and education. This approach assigns a weighted value to youth equal to 1 if they are completely an opportunity youth and zero if they are fully employed or in full-time education. So, a person who is in college half-time (and not working) is counted as 0.5 of an opportunity youth; a person who works for three months of the year is counted at 0.75; and a person who does both these activities in the same year is counted as 0.25. This approach captures the balancing of work and education, as well as measuring low engagement of youth.

In these analyses, utilizing the NLSY97, youth who worked more than 1,800 hours (or 45 weeks or more of full time work) in a year were considered full time. Youth who worked between 1100-1799 hours a year were given a work score of 0.75; those who worked 700- 1099 hours in a year were assigned a score of 0.5; working 450-699 hours in a year earned a score of 0.25; and less than 450 hours of paid work (11 weeks) in a year was counted as not working for the year. To calculate school involvement, students who were still in k-12 between the ages of 16-18 were assigned an automatic value of 1 for full time school. For those over 18, 9 months or more of full-time enrollment in school was also assigned a 1. Those who had the equivalent of 6-8.9 full time months in school were assigned a 0.75; a 0.5, measure of schooling was given to those enrolled for the equivalent of 4-5.9 full time months; a score of 0.25 was assigned to youth with 1-3.9 fill time months of schooling, and students with less than 1 month of full-time schooling in a year were assigned a 0 on our school measure. The intensity measure was created by summing the points assigned for school and work, but capped at 1 such that youth could not be given a school-work intensity score higher than 1, even if they both worked and attended school full time.

We also estimated the intensity measure using ELS 2002, within which we had only dichotomous measures of employed or unemployed status, for each month in 2005. We also had similar enrolled v. not-enrolled dichotomous status reports for schooling engagement, for each month in 2005. We used these to create work and education scores, in which we summed the monthly scores for work and school. In this case, 11 months of employment was counted as full time work, and 9 months of enrollment in school was counted as full time in school, and the intensity of school or work was counted as a fraction of 11 and 9 respectively.

Our third approach is intended to count ‘chronic’ opportunity youth, i.e. those individuals who have spent the majority of their life between the ages of 16 to 24 as opportunity youth. These individuals are most likely different from students who are intermittently out of school or unemployed. We distinguish chronic opportunity youth as a subset of all opportunity youth. Using the intensity calculations, those who have a score of 0.75 or higher are considered chronic, while those with scores between 0.25-0.74, are counted as weak opportunity youth.


Defining Opportunity Youth

Currently, there are 38.9 million youth between the ages of 16 and 24 in the U.S. Most of these youth are in school initially followed by college participation and other forms of post-secondary education or employment, but a sizeable proportion do not follow this path. Table 1 shows our estimates of opportunity youth using the first three approaches.


Table 1

Opportunity Youth in the US

Count and Measure

Percent of Age Group

Opportunity Youth

(millions)










ACS

9.2

3.58

Primary Status Measure:







CPS

16.0

6.23

NLSY97

14.8

5.76

ELS2002

21.9

8.53

ADD Health

16.5

6.43

Average

17.3

6.74

Intensity Measure:







NLSY97

27.5

12.54

ELS2002

32.9

12.81

Average

30.2

11.76

Chronic measure:







NLSY97

10.1

3.93

ELS2002

8.2

3.19










Total youth population ages 16-24

100

38.94

Notes and Sources: ACS American Community Survey 2009. CPS Current Population Survey (March release, pooled 2006-2010) defined as unemployed (on layoff and looking) plus not in labor force (disabled, other, retired) minus those in school. NLSY97 weighted frequencies. ELS2002 sample aged 20-21. ADD Health sample ages 16-24 (unweighted). Total youth population Puzzanchera et al. (2010).
The first row of Table 1 shows that the American Community Survey counts only 9 percent of youth as opportunity youth. However, this estimate appears to be too low, both because of how the ACS defines opportunity youth (discussed above) and because all other datasets yield much higher estimates.

The primary status measure classifies youth based on their primary activity during the year, and those not primarily either at work or in school are defined as opportunity youth. This measure yields an opportunity youth group of 6.7 million or 17.3 percent of the youth population. However, as shown in the middle panel of Table 1, the intensity measure indicates a substantially larger opportunity youth phenomenon: almost one-third (32.6 percent) of all youth time is devoted neither to work nor to enrollment in school.

Finally, Table 1 shows the count of chronic opportunity youth. These figures show that 3.2-3.9 million individuals (or 9 percent of all youth) might be described as ‘chronic’ opportunity youth, i.e. after 16, they never attended school, went to college, or worked.3 This figure is comparable to the ACS figure, and may be more in line with the definition of opportunity youth from that survey, as well as with previous research that estimates a population of between 8-10 percent disconnected youth (Hair et. al 2009; Vericker et al., 2009).

In some respects, the numbers of opportunity youth depend on what constitutes ‘opportunity’. Some youth face multiple disadvantages; others have made active choices to reject participation in work or education, and another group are ‘under-connected’, or not fully participating. To be conservative, we use the primary status measure (Table 1) to estimate two categories of opportunity youth. That is, 17 percent of youth are opportunity youth, but 8 percent are not in the chronic category, and we refer to these 3.3 million youth as ‘under-attached’. (Using the intensity measure, it might be reasonable to count the under-attached opportunity youth at almost 25 percent of all youth). Thus, our approach assumes that a high proportion of youth have substantial economic potential.

In addition to understanding the overall picture of opportunity youth, it is helpful to understand how different sub-groups are affected. For example, both chronic and under-attached opportunity youth status is more common for minority youth. The NLSY97 data show the racial composition of opportunity youth is 46 percent white or other racial groups (primarily Asian, and American Indian), 32 percent are Black, and 22 percent are Hispanic. Although the number of whites is substantial, they are under-represented relative to their population, and the two minority groups are over-represented. In addition, slightly more than half of all opportunity youth are male, but slightly more than half of the youth population is male, too. However, female opportunity youth are more likely to have family responsibilities, while male opportunity youth are more likely to be incarcerated.


III. The Immediate Burden of Opportunity Youth

The opportunity youth population is at risk for suffering large economic consequences throughout their lives, as research has shown that those with significant gaps in the education-work sequence experience a pay and employment handicap, even when they later seek work (Bell and Blanchflower 2011; Mroz & Savage 2006). That is, they are “scarred” and even when they gain employment, they lag behind others with continuous educational and work histories. For example, even those with three or more years of job tenure who suffer job displacement lose about 11 percent of the present value of future earnings (David & von Wachter 2011).

Opportunity youth who lack labor market skills or human capital are at-risk of worse economic, social, and personal outcomes, both immediately and over a lifetime. Therefore, we calculate the economic burden from the perspective of both society and the taxpayer. These perspectives overlap slightly but are based on different interpretations of resource use. The social perspective counts all of the resource implications of opportunity youth, regardless of who ‘pays’ for them, while the fiscal perspective only counts resources for which the taxpayer is responsible. The main fiscal consequence of having a large opportunity youth population is the lost earnings and lost tax revenues, but other consequences include youth who have inferior health status, are engaged in more criminal activity, and utilize more social services.

The burdens reported in this section are per individual opportunity youth, and per opportunity youth cohort aged 16-24. In the next section we address the long run costs of opportunity youth. Additionally, we distinguish between chronic opportunity youth and youth who are significantly under-attached either to the labor market or the education system. Thus, for the individual burden per opportunity youth and the aggregate burden per cohort, we report estimates for all opportunity youth (6.7 million). We also report summary estimates separated by race and gender.4



The social burden is composed of lost gross earnings (Y), all additional health expenditures (H), and all crime costs (C). Welfare and social services (WS) that are not direct transfers from government to individual are also included in the social burden, as are the public and private costs of education (E). An important, but often neglected, component of the social burden is the economic distortion imposed by raising taxes to pay for government programs. Raising taxes imposes costs on individuals who avoid the taxed good (and so do not pay the tax). This cost is called the ‘marginal excess tax burden’ (m). Another economic consequence is the lost productivity spillovers associated with having a more productive or skilled workforce (YG). Workers learn from each other, so having a more skilled workforce helps all workers (Moretti, 2004).

Box 1

The Components of the Economic Burden of Opportunity Youth










Y

Lost earnings

Gross income including fringe benefits (health and pension)

T

Lost tax payments

Includes federal and state income/consumption taxes

CF

Crime: Public expenditures

Criminal justice system, policing, and corrections expenditures (federal, state, and local)

CV

Crime: Victim costs

Reduced quality of life, monetary damages, lost earnings

HF

Health: Public expenditures

Medicaid, Medicare for persons under 65, and other government agency expenditures on health

HP

Health: Private burdens

Private expenditures on medical treatments (out-of-pocket, private insurance) and private valuations of health

WS

Welfare: Support programs

Expenditures on social supports (e.g. workforce retraining)

WF

Welfare: Transfer payments

Amounts paid to individuals who receive government supports

YG

Productivity spillovers

General economic gains from a more educated workforce

EF

Education: Public savings

Lower schooling and college subsidies from government agencies

EP

Education: Private fee savings

Lower fees and college expenses for families

M

Marginal excess tax burden

Cost of raising taxes to pay for public services










Social Burden = Y + mCF + CV + mHF + HP + mWS + YG – mEF - EP










Fiscal Burden = T + CF + HF+ WS + WF – EF

The taxpayer (or fiscal) burden is composed of lost taxes (T), additional health care paid for by the taxpayer (HF), expenditures for the criminal justice system and corrections (CF), and all welfare and social service payments regardless of whether they are transfers (WF + WS). Any savings in lower education spending from opportunity youth not enrolled in school or college, are also counted (EF).

Other components of the social and fiscal burden that we have not counted include costs to families such as providing residence or care for individuals who are not economically independent, direct outlays of health expenditures, or resource commitments by non-governmental agencies or charities to ameliorate youth delinquency. There are also intergenerational burdens accrued from the transfer of economic and health-related disadvantages transferred from youth to their children. Although these burdens may be substantial they are omitted because there is insufficient data or evidence of their magnitudes.

The social and fiscal burdens are therefore the sums of the appropriate components in Box 1. Each component is calculated from current social science research and the most recent available data, including government budget documentation and web-based datasets.5 This method is well-accepted, and follows methodological and empirical research over the past four decades. We calculate each component of the burden separately by race and gender, and then aggregate them to report a nationally representative figure based on the demography of the current U.S. youth population.



Earnings and Taxes

Few opportunity youth have jobs, and those who do are primarily low-wage and temporary employees, with few benefits. Thus, one of the main burdens of opportunity youth is the contemporaneous loss in earnings.

Using CPS data to calculate lost earnings comparisons between opportunity youth and youth who are working, we find that the average opportunity youth earns $4,100 per year, while youth who are working (either part-time or full-time) earn an average of $13,900 per year. Therefore, the lost earnings per opportunity youth are $9,800 per year, on average. The aggregate amount across the 6.7 million opportunity youth is $65.8 billion.

These gaps in earnings by opportunity youth translate into gaps in tax contributions at both the state and federal level, which can also be calculated from the CPS. Overall, the average opportunity youth pays $750 in taxes per year, while the average working youth pays $2,430. Thus, each opportunity youth is contributing $1,670 less in taxes, which amounts to a tax loss of $11.3 billion annually across the youth cohort.

Of course, these amounts are understatements because they are comparisons of wages on entry to the labor market. Many young workers enter the labor market only part-time, while others sacrifice pay for training, and the expectation of higher wages after more work experience. Thus, the actual gap, even in the short run, is probably much larger. The full lifetime gap, as we show below, is extremely large.

Crime

A substantial proportion of all crime committed in the U.S. can be attributed to youth, who are arrested for 37 percent of all violent crimes and 43 percent of all property crimes. Over 300,000 youth are in prison or other detention facilities (UCR, 2010, Table 38; Sickmund et al., 2011). Juvenile youth typically commit crimes related to drug use, gun violence, gang activity, and alcohol/drug abuse, as well as crimes in school. However, many juvenile crimes are not prosecuted through the adult justice system, partly masking the fiscal burden they impose (NCJJ, 2008). Yet, far more important than these fiscal costs is the psychological and monetary burden on the victims of crime.

The taxpayer burden of crime is composed of criminal justice system expenditures including policing, sentencing, incarceration, and expenditures on crime prevention. Across all youth aged 16-24, federal, state and local agencies spend $75 billion directly each year on crime.

The social burden of crime includes these fiscal burdens, as well as costs directly imposed on victims. The burden for victims is calculated from the number of crimes times the burden per crime. For example, estimates range from more than $5 million in victim costs per murder, to more than $6,000 in victim costs per car theft. Combined, a conservative estimate for the total costs to victims of youth crime are $118.4 billion annually.6

Note that these burdens are across all youth, not just opportunity youth. Disentangling the proportion of this burden attributable to opportunity youth is not straightforward because many criminals are employed in the labor market, and many crimes are committed by students. Attributing all crime to opportunity youth conflates different roles that may be played by the same people, such as criminal, worker, and student. Therefore, we use estimates from the NLSY97 to apportion crime between opportunity youth and the rest of the youth population. From these data, we cross-correlate youth who were ever arrested with our measure of opportunity youth from that survey. Based on these correlations, we attribute 63 percent of all youth crime to opportunity youth, even though this group comprises only 17.3 percent of the population.7 This proportion fits with the well-established correlation between crime and disadvantage or low education (Merlo and Wolpin, 2009; Lochner and Moretti, 2004). It also accords with the pattern of criminal activity by chronic offenders: approximately 6 percent of all offenders are responsible for half of all crimes (Cohen and Piquero, 2009) and opportunity youth are disproportionately in this group.

Therefore, the annual fiscal burden of crime is $76.7 billion across the entire 6.7 million opportunity youth. The social burden includes this fiscal burden plus an additional $111.2 billion in victim costs (and a marginal excess tax burden as we discuss below). Critically, these are only estimates of expenditures during these years of youth. A person who is incarcerated will impose costs over a much longer time frame, both because time incarcerated continues beyond the current year and because recidivism rates are extremely high. These long run costs are calculated below.


Health

Opportunity youth have worse health outcomes than other youths, and are more likely to have spent time in a mental hospital in the past five years. For example, based on figures calculated from Add Health, three percent of opportunity youth have spent time in the last year in a mental hospital, compared to two percent of all youth. They are also more likely to have received drug/alcohol treatment in the last year, and 11.4 percent use marijuana more than three times a week, compared to 8.4 percent of all youth. Annual public health care spending for all youth in the U.S., which includes Medicare, Medicaid, CHIP, DoD, DVA, other federal, state, and local programs, is $1,340 per youth (Cylus et al., 2010). However, opportunity youth receive more public health care, and each Medicaid recipient costs in excess of $10,000 annually (CMS, 2007). Finally, opportunity youth are more likely to be uninsured. Although the uninsured receive fewer healthcare services, the care they do receive is often delivered inefficiently through emergency rooms (Simpson et al., 2005).

Using Add Health data, we calculate that 27.8 percent of opportunity youth are on Medicaid, as compared to 5.3 percent of the full youth cohort.8 Using these proportions, in conjunction with the public expenditures, we estimate that the average opportunity youth imposes a public health care burden of $3,490; by comparison, the average youth imposes a burden of $1,110. Therefore, each opportunity youth imposes a net burden of $2,380 for an aggregate burden of $16.0 billion.
Social Supports

Opportunity youth are more likely to receive TANF, housing assistance, food stamps, and WIC (Grogger, 2004). The CPS includes information on amounts received for supplemental security income and public assistance. For these two services alone, opportunity youth receive $280 more per year than other youth. Conservatively, opportunity youth receive $360 more in welfare payments each year, which includes both direct payments and administrative costs. In aggregate, opportunity youth account for $2.4 billion annually in social supports, across the cohort.

There are also social support grant programs such as YouthBuild, JobCorps, or homeless shelter and runaway teen grants among others, that are intended to ameliorate the economic and social challenges of disadvantaged youth (GAO, 2008)9. Although we cannot attribute all this spending to opportunity youth, conservatively we assume that opportunity youth rely on these grants in the same proportion as they receive public assistance payments. This yields an extra amount spent on opportunity youth of $430 per youth, and an aggregate of $2.9 billion annually.
Education

Youth who are not in school or college are not paying fees and are not receiving government subsidies, which represents both a short-run savings, and a long-term burden. However, to be consistent, we calculate the fiscal education savings (EF) by summing the public high school expenditures as well as college subsidies, weighted according to the respective enrollment rates of opportunity youth and all youth. To calculate the private costs (EP), we sum fees incurred by students in college (NCES, 2011). Although these amounts are significant, they are attenuated by the fact that students can only dropout of high school in the earlier youth years (up to 18) and only a fraction of students go on to attend college. Per opportunity youth, we estimate a fiscal savings at $2,320 and a public savings at $2,210. In the aggregate, these amount to $15.7 billion less in government spending on education as a result of opportunity youth not being in school. The opportunity youth themselves save $14.9 billion in fees and expenses.
The Marginal Excess Tax Burden

The marginal excess tax burden is the distortion imposed by raising taxes to pay for government health, crime, and welfare services (net of education spending). Each of the above fiscal burdens is therefore magnified. Economic estimates put this burden conservatively at 13 percent (Allgood and Snow, 1998).10 That is, the full cost of getting $1 of tax revenue to spend on public health care, for example, is actually $1.13. We therefore apply this value to each of the items of government spending. The distortion imposed by collecting taxes for public programs that serve opportunity youth alone is $1,540 per opportunity youth and $10.4 billion in aggregate.



The immediate burden per opportunity youth is summarized in Table 2. Each year the average opportunity youth imposes a total fiscal burden of $13,900 and a total social burden of $37,450, the largest share of which is driven by criminal justice system spending. The tax implications are relatively minor because most of the non-opportunity youth are in school, in college, or in the first few years of working. The social costs are also driven primarily by criminal activity, impacts on crime victims, and gross earnings.
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