In This Together

Mugglestone2 EMBED

A policy brief by Rory O’Sullivan, Konrad Mugglestone, and Tom Allison

This is an interactive HTML version of the report. To view a .PDF version of this report, click here.


Index

I. Foreword

II. Key Findings

III. The Cost to the Nation: What We Found

- Cost Per Worker

- Adding It All Up

- Cost Per Taxpayer

- Missed Opportunities

IV. The Cost To States: What We Found

V. Policy Recommendations

VI. Appendices

VII. Acknowledgments

VIII. Footnotes

I. Foreword

Dear Reader:

As the director of the Center on Education and the Workforce at Georgetown University, I first met Rory O’Sullivan and his team at Young Invincibles as we began the research for Failure to Launch, a report that examined young adults’ delayed launch of their careers and adult lives over the past three decades. We worked together in partnership with Generations United and The Generations Initiative, led by Hilary Pennington, in a broad effort to examine how generational issues play out in different arenas of our economy and society.

Since its inception, Young Invincibles has provided an authentic and credible voice for young adults across the country. At a time when young people are facing a mountain of new challenges in college, the labor market, and the home, their new report, In This Together, lays clear how much our failure to provide young people with good jobs is costing our economy and the public each year at the federal and state level. Their findings are staggering: severely high youth unemployment costs $9 billion in tax revenue each year at the federal and state level.

In This Together is a call to action for the national public, and the message shouldn’t be taken lightly. How we tackle the problems facing today’s youth has enormous implications for what the rest of the 21st century will look like in the U.S. Their policy proposals represent the opening of a national dialogue about how to address our current youth employment crisis.

Sincerely,

Dr. Anthony Carnevale

Director, The Georgetown University Center on Education and the Workforce

II. Key Findings

Throughout the deepest recession and the slowest recovery since World War II, young adults in America have walked an exceptionally difficult road. The cohort of “Millennials” aged 18 to 34 have now seen double-digit unemployment rates for over 70 consecutive months, or almost six years. The youngest workers, aged 16 to 24, are even worse off, with unemployment rates well over twice the national average—at 15 percent versus an average for the full working population of 7.3 percent.[1] Moreover, we have made little progress toward recovery.

In prior downturns, the employment rate for young adults nearly reached pre-recession levels within 5 years.[2] In the Great Recession, young adult employment had not even recovered halfway by the same point. A quarter of all job losses for young adults came after the Great Recession was officially over.[3] The lack of jobs has driven many discouraged young people from the labor force altogether. A recent report by Opportunity Nation estimates that 5.8 million young adults are neither working nor in school.[4]

The best evidence warns that lack of work experience now will lead to dismal consequences for these jobless young people down the road in the form of repressed wages, decreased employment, and reduced productivity.[5] By one calculation, young Americans aged 20 to 24 will lose about $21.4 billion in earnings over the next 10 years. That’s roughly $22,000 less per person than they could have expected had they not suffered through the recession.[6]

However, our generation’s challenges extend beyond each individual’s struggle, or even this generation’s struggle: the young adult unemployment crisis affects everyone. Every year of historically high young adult unemployment means lower tax revenue and higher safety net expenditures for federal and state governments. Taxpayers of all generations bear the burden.


Figure 1/Figure 2

To quantify this problem, Young Invincibles calculated the average monetary cost passed on to the taxpayer due to high youth unemployment. Building upon our previous research into the repressed job market for young workers, we find that the costs are too high to ignore. Chronically high young adult unemployment places heavy burdens not just on young people, but also on taxpayers of all ages. We estimate:

  • COST PER WORKER: On average, one unemployed 18- to 24-year-old will cost his or her federal and state government over $4,100 annually in forgone tax revenue paid and safety net benefits paid out. One unemployed 25- to 34-year-old represents nearly $9,900 annually in foregone tax revenue and benefits received.[7] The overwhelming majority of these costs derive from lost tax revenue, not from services delivered.
  • ADDING IT ALL UP: The total annual cost of severely high unemployment rates for 18- to 34-year-olds on the federal and state governments is almost $8.9 billion annually.
  • COST TO INDIVIDUAL TAXPAYER: If those costs were passed on directly to the taxpayer, high young adult unemployment would add an extra $53 to every American taxpayer’s annual federal tax bill. The cost is higher when including state income tax losses.
  • MISSED OPPORTUNITIES:  If we consider the more than 3.4 million jobs that simply don’t exist due to the recession, the total cumulative cost of joblessness for 18- to 34- year-olds borne by federal and state governments is over $25 billion annually. This represents an average annual cost of over $171 per taxpayer.

III. The Cost To The Nation: What We Found

Jonea, a 26-year-old from Maryland, stopped pursuing an associate degree because her mother was diagnosed with breast cancer. When her mother passed, she took online courses through the Art Institute of Pittsburgh, but had to stop attending when the costs became prohibitive. Despite having experience working at a Giant grocery store, she has been unable to find work in retail. Routinely, potential employers told her she was either over- or under-qualified. To make matters worse, Jonea applied for unemployment benefits after leaving Giant, but she was lost in the system and never heard back. Her story is only one example of the millions of hard-working young people who lack options for basic economic security.

Individual unemployment carries a huge personal cost. It means reduced opportunities, greater anxiety, and dreams deferred or even denied.  Scale that up to a generation, and it creates billions of dollars in economic losses.

Cost Per Worker

If the moral price of high young adult unemployment does not move our policymakers to action, then the social cost should. We estimate the price of young adult unemployment by combining foregone federal income taxes (after credits) and Federal Insurance Contribution Act (FICA) taxes with increased expenditures on unemployment insurance and welfare programs (See Appendix A for our detailed Methodology). On average, we calculate that one unemployed 18- to 24-year-old will cost the federal and respective state government over $4,100 annually in forgone tax revenue and benefits received. The costs to government grow as unemployed individuals age. On average, we estimate each unemployed 25- to 34-year-old will cost his or her federal and state government a staggering $9,875 annually. Putting that in perspective, the average tuition and fees for an in-state resident at a public college during the 2013-2014 school year was $8,093.[8] In any given year, we lose more money on unemployed young people than it would cost to invest in sending them to an in-state public university. Given lower unemployment and higher wages for college graduates,[9] paying for young adult unemployment is an inefficient allocation of taxpayer dollars.

Importantly, lost tax revenue, not safety net benefit costs, drive the social cost of young adult unemployment. We estimate that the federal government loses over $3,200 in potential income taxes and FICA taxes per 18- to 24-year-old, and almost $7,000 per 25- to 34-year-old. Unemployment benefits make up a smaller portion, with even less coming from welfare payments. On average, an unemployed 18- to 24-year-old is estimated to receive only around $280 more in these benefits a year. This limited social safety net accounts for less than 7 percent of the cost of their unemployment. The remainder is lost tax revenue.

This should come as no surprise. Eligibility for unemployment insurance, a significant vehicle protecting workers from economic downturns, is based on wages earned and time employed. Younger workers who generally earn less during their budding careers qualify for few benefits. Furthermore, recent high school or college graduates looking for work will, in many cases, receive no benefit at all.

costofyouthunemployment

Figure 3
Because unemployed 25- to 34-year-olds are more likely to have had an established career before unemployment and thus higher wages, an unemployed person in this age group receives an average of over $1,800 in social insurance benefits. Of this number, the vast majority (~$1,700) comes from unemployment insurance.

Adding it all up

Our next step was to add up the individual costs of young adult unemployment to arrive at an aggregate cost. If the United States were to reduce its young adult unemployment rates to pre-recession levels (9.63 percent and 6.56 percent for 18- to 24-year-olds and 25- to 34-year-olds, respectively), it would need to create about 1 million jobs for 18- to 24-year-olds, and another nearly 500,000 jobs for 25- to 34-year-olds. In other words, assuming no increase in the labor force size, we are 1.5 million jobs short of where we would need to be to reach 2007 young adult unemployment rates (remember that this excludes the many young people who have left the job market – we will get to that soon).

Multiplying the missing jobs by the average cost of each unemployed young person, we estimate that the total annual cost of severely high unemployment for 18- to 34-year-olds on the federal and state governments is almost $8.9 billion annually. The federal government bears the brunt of the burden, totaling almost $7.8 billion out of the $8.9 billion annual total. The bulk of this comes from forgone federal income taxes and FICA taxes paid by employed young Americans. Losses absorbed by the states account for the remaining $1.1 billion, which we will analyze in the following section.

Cost Per Taxpayer

Approximately 146 million individual income tax returns were filed for fiscal year 2012. If the $7.8 billion federal burden were placed directly on the taxpayers, it would cost an extra $53 per federal taxpayer. This ignores the additional $1.1 billion burden imposed by state governments. When factoring in state taxation, the average burden placed directly on the public is over $60 per American taxpayer. Depending on the states’ tax system, this amount could be higher or lower. Table 1 shows the estimated cumulative cost of these lost jobs, calculated by multiplying these values with our estimated cost per young adult.

Table 1: Costs of High Young Adult Unemployment Rates in America

Cohorts Federal Cost State Cost Total Cost
18 to 24 year-olds $3.59 billion $573 million $4.16 billion
25 to 34 year-olds $4.21 billion $528 million $4.74 billion
18-34 year-olds $7.80 billion $1.1 billion $8.90 billion
Average cost per taxpayer $53.32 $7.53 $60.84

Missed Opportunities

However, as we noted in the introduction, merely focusing on the labor force misses a huge demographic of young people: those not working and not in school. Often referred to as “disconnected” or “opportunity youth,” these young people face some of the greatest challenges of anyone in our generation. Moreover, the problem pre-dates the Great Recession as young people never really recovered their employment levels from the 2001 “dot-com” crash. Defining this population poses challenges, however.  So in order to estimate the cost of young people who are not in the labor force, we calculated a cost for all of those who had left the job market once the recession hit.

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Figure 4
In November 2007, 63.8 percent of all 18- to 24-year-olds and 79.1 percent of 25- to 34-year-olds were employed. By March 2013, these numbers had dropped to 54.6 percent and 75.4 percent, respectively. Putting this in perspective, had the economy maintained its pre-recession levels of employment, more than 3.4 million additional Millennials would be employed. If these were all full-time positions, they would represent more than $25 billion annually in net losses to federal and state governments. Should these costs be passed directly to American taxpayers, we estimate that each and every taxpayer would be liable for about $171 a year, or around $110 on top of our estimated costs related to high unemployment rates. While some of these jobs may have been part-time, these estimated annual costs are still astronomical.

IV. The Cost To States: What We Found

While every American taxpayer will share the $53 per year in federal costs, not all states carry the same burden from young adult unemployment. The annual loss of $1.1 billion in state taxes across all states is certainly enormous. However, differences in young adult unemployment rates, as well as differences in average wages, state tax rates, and minimum wages (among other factors) can make the situation even more extreme in some locations. When considering the total amount a state loses relative to other states, population size must also be taken into account alongside these other factors. Figure 4 shows the worst 10 states for total state tax losses, all of which are estimated to lose $50 million or more annually. Unsurprisingly, California is first on the list, but it also has the largest population in the country by far. New York, Illinois, and Pennsylvania also boast large populations. However, significantly less populous states such as North Carolina, Georgia, New Jersey, Alabama and Kentucky round out the top 10. The southern states have shockingly high young adult unemployment rates, despite relatively low state tax rates.

When we divide these estimated cumulative losses by the number of tax returns filed within the state, the picture changes dramatically. This roughly controls for state population, projecting how much each taxpayer within any given state pays above the $53 cost we estimated every American taxpayer is already facing. Figure 5 shows these results, and as one can see, the worst five states for this per-taxpayer cost are all southern states.

We provide in Appendix B comprehensive lists of our estimates for all 50 states, including lists capturing cumulative federal costs, cumulative state costs, per taxpayer costs, and per unemployed young adult costs for both 18- to 24-year-olds and 25- to 34-year-olds.

Despite generally lower state tax rates, taxpayers in southern states face the largest per taxpayer costs due to the severely high young adult unemployment rates. Residents in Kentucky, Alabama, and North Carolina all see about $27 more on their state tax bill every year, piling on another 50 percent to the increased federal tax burden.

States bearing high costs of young adult unemployment aren’t just limited to the Southern United States. Due to differences in wages, tax structure, and living costs, a number of states face significant losses per unemployed young adult. Oregon, Massachusetts, Washington DC, New York, Virginia, and Hawaii all face losses of more than $1,000 per unemployed 18- to 24-year-old. Similarly, DC and New York face losses of almost $3,000 per 25- to 34-year-old. Furthermore, Oregon, California, Connecticut and Massachusetts all face estimated costs between $1,600 and $2,000 per unemployed 25- to 34-year-old. Interestingly, many of the states facing the highest per-young adult costs are not the same as those with the highest per taxpayer costs, demonstrating there are numerous incentives for different states to deal with this crisis.

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Figure 5

Policy Recommendations

Fortunately, young people, and the country, do not have to continue to pay the price for ignoring high young adult unemployment. There are a number of proven solutions that can help get our generation, and the future of our economy, back on track. They fall into two basic categories: first, we must reconnect young people to the workforce to prevent more long-term damage to our generation’s economic future. Second, we must improve our generation’s skills generally to avoid a historic unemployment crisis down the road.  These recommendations can both help to fulfill the promise of the American dream for this generation and deliver a return on investment for taxpayers, one that will ultimately grow the economy for everyone.

First, we see expansions of paid service as essential to reconnecting young adults to the labor force. Service offers young people the opportunity to learn valuable skills while aiding communities in need. Ramping up AmeriCorps — a program that currently offers only 82,500 positions yet receives more than 500,000 applicants a year — is a demonstrable way to fill the young adult jobs gap.[10]  AmeriCorps is the largest national service program in the country, and for every dollar spent on national service, American society receives nearly $2.50 in benefits.[11] Additionally, AmeriCorps alumni enjoy better job prospects and higher wages than young adults who have not participated.[12]

Additionally, Young Invincibles proposes reinstating the Youth Opportunity Grant (YOG) program. Congress defunded YOG in 2005, despite later evidence that communities with YOGs had significant success reconnecting at-risk youth to the workforce compared to communities without grants.[13] With over 5.8 million young people who are neither working nor in school, the country needs a plan targeted at this population. YOG established centers in high-poverty areas, staffed with counselors providing training in life skills and community service in order to improve employment rates. Though there remain several ways to improve the program, it created more than 23,500 internship opportunities, placed more than 46,000 young people in jobs, and provided training to almost 23,500 participants for its 5-year, $1 billion price tag.[14] Considering each at-risk youth costs taxpayers $170,740 over their lifetime, YOG, if reinstated, would pay for itself.[15]

However, the expansion of national service and reinstatement of YOG alone will not solve young adult unemployment. We need a plan that better prepares all young people with the skills they need upon entering the workforce. Work-based learning experiences such as apprenticeships and internships offer a great opportunity to do this.

Young Invincibles strongly supports expanding the Department of Labor’s Registered Apprenticeships program. RAs provide potential workers with a combination of hands-on work and classroom instruction in order to train them in vital technical skills, all while getting paid. Registered Apprenticeships are extraordinarily profitable for the federal government, resulting in $50 in government revenue for every federal dollar invested, an eye-opening 5,000% return-on-investment.[16] The RA program is profitable for business as well- with researchers finding that every dollar invested in an apprentice returns $1.40 to the employer.[17] It is no wonder that 97 percent of sponsoring organizations would recommend RAs to other companies.[18] If the Department of Labor expanded the RA program by 600,000, it could add an extra $74.4 billion in social benefits to the economy over the lifetime of each graduating class.

Despite the success of RAs, not all companies or young people will find the longer time frame attractive. In order to provide a shorter-term alternative for students, we propose establishing a new “Career Internship” standard, combining a long-term internship with a school-approved employer. Schools would need to ensure that employers offer valuable training and experience beyond clerical work. The positions would pay at least minimum wage, but require a minimum number of hours a week in order to earn high school or college credit. There would also be a component to allow out-of-school youth the opportunity to participate. The program would provide necessary workplace experience to young people while giving employers an opportunity to evaluate and retain future employees.

Drexel University’s Cooperative Learning Program already implements a similar and successful model. The money earned by the student could be used to help make college more affordable. Indeed, at Drexel, the average six-month salary of students working in the program is greater than $16,000.[19] Furthermore, participants could determine if the career is an optimal fit for their expectations and skillset. Finally, establishing a standard for internships would provide a low-cost incentive for employers to improve their existing internship programs. Similar to how the organic food label encourages farmers to go organic through positive recognition, the “career internship” label could be something that employers could market to consumers and potential employees as a sign of corporate responsibility.

Finally, moving beyond the scope of what government can do, employers across America stand to benefit from creating roles within their organizations for more Millennial workers. We know intuitively this generation is adept at employing the latest technology and increasing productivity. We know this generation has learned collaboration and an inclusive approach. Polls[20] show we are entrepreneurial in our thinking, in part because we doubt institutions will be able to keep their commitments to us in years to come and we have become more creative and self-reliant as a result. These are all qualities that 21st century businesses and organizations need more of to innovate and grow. So hire a Millennial! We’re all in this together.

VI. Appendices

For the appendices, please refer to the .PDF version of this document.

VII. Acknowledgments

The authors would like to thank Dr. Anthony Carnevale, Dr. Jeff Strohl and the Georgetown Center for Education and the Workforce for their generous assistance in the development of this report. We also would like to thank the following people for their thoughtful comments, edits, and assistance: Dr. Michael Hanmer, Aaron Smith, Jen Mishory, Reid Setzer, Portia Boone, Christina Postolowski, Jacob Wallace, and Brian Burrell. Finally, we would like to thank Ellen Qualls, Julian Aldana, Jessica Adair, Colin Seeberger, Katherine Schaller, and RaeAnn Roca-Pickett for their extraordinarily hard work in graphic design, communications, and outreach. Without any of you, this project would not have been possible.

VIII. Footnotes

[1] Young Invincibles’ analysis of “Current Population Survey,” Bureau of Labor Statistics, US Census Bureau, accessed November 8, 2013, http://younginvincibles.org/2013/11/young-invincibles-statement-on-october-jobs-report/.

[2] O’Sullivan and Mugglestone, How the Great Recession is the Worst for Millennials in Six Graphs (Washington, DC: Young Invincibles, 2013), 9, accessed November 20, 2013, http://younginvincibles.org/wp-content/uploads/2013/07/How-the-Great-Recession-is-the-Worst-for-Millennials-in-Six-Graphs.pdf.

[3] Ibid.

[4] Opportunity Nation, The Opportunity Index 2012 (Boston: 2013), accessed November 20, 2013, http://opportunityindex.org/national-trends/.

[5] Mroz and Savage, “The Long Term Effects of Youth Unemployment,” The Journal of Human Resources 41, no. 2 (2006): 259–293; Lisa Kahn, “The Long Term Labor Market Consequences of Graduating from College in a Bad Economy,“ Labor Economics 17, no. 2 (2010): 303–316.

[6] Sarah Ayres, The High Cost of Youth Unemployment (Washington, DC: The Center for American Progress, 2013), accessed November 20, 2013, http://www.americanprogress.org/issues/labor/report/2013/04/05/59428/the-high-cost-of-youth-unemployment/.

[7] Comparison to a young adult who has a full-time (i.e. 40-hour-a-week) job throughout the entire year.

[8] Frohlich, Sauter and Hess, “States with the most and least affordable colleges,” USA Today, October 30, 2013, accessed November 20, 2013, http://www.usatoday.com/story/money/personalfinance/2013/10/30/states-affordable-colleges/3312451/.

[9] Bureau of Labor Statistics, Earnings and Unemployment Rates by Educational Attainment (Washington, DC: US Department of Labor, 2013), accessed November 20, 2013, http://www.bls.gov/emp/ep_chart_001.htm.

[10] Young Invincibles, Young American Ideas Book: 12 Solutions to Help Get Our Generation Back on Track (Washington, DC: 2012), 6, accessed November 20, 2013, http://younginvincibles.org/wp-content/uploads/2012/08/Young-American-Ideas-Book.pdf.

[11] Clive Belfield, The Economic Value of National Service (Washington, DC: Voices for National Service and Civic Enterprises for the Franklin Project at The Aspen Institute, 2013), accessed December 26, 2013, http://www.aspeninstitute.org/sites/default/files/content/docs/pubs/FranklinProject_EconomicValue_final.pdf.

[12] Kramer, O’Sullivan and Burrell, A Fight For the Future: Education, Job Training, and the Fiscal Showdown (Washington, DC: Young Invincibles and the National Priorities Project, 2012), 7, accessed November 20, 2013,  http://younginvincibles.org/wp-content/uploads/2012/11/11-14-12-KS-1.pdf.

[13] Dan Ryan, Youth Opportunity Grant Initiative: Impact and Synthesis Report (Washington, DC: United States Department of Labor, 2007), 18-88, accessed December 9, 2013, http://wdr.doleta.gov/research/FullText_Documents/YO%20Impact%20and%20Synthesis%20Report.pdf.

[14] Linda Harris, Learning from the Youth Opportunity Experience: Building Delivery Capacity in Distressed Communities (Washington, DC: Center for Law and Social Policy, 2006), 3, accessed November 20, 2013, http://www.clasp.org/admin/site/publications_archive/files/0193.pdf.

[15] Belfield, Levin and Rosen, The Economic Value of Opportunity Youth (Washington, DC: Civic Enterprises, 2012), 2, accessed November 20, 2013, http://files.eric.ed.gov/fulltext/ED528650.pdf.

[16] “Fact Sheet on Registered Apprenticeships,” US Department of Labor, accessed November 22, 2013, http://www.doleta.gov/oa/pdf/fsback.pdf.

[17] California Division of Apprenticeship Standards, Apprenticeship: Employer Benefits, Roles and Responsibilities (San Francisco: Department of Industrial Relations), accessed November 20, 2013, http://www.dir.ca.gov/das/ApprenticeshipEmployerBenefitsRolesandResponsibilities.pdf.

[18] Lerman, Eyster and Chambers, The Benefits and Challenges of Registered Apprenticeships: The Sponsors’ Perspective (Washington, DC: The Urban Institute Center on Labor, Human Services, and Population, 2009), 16, accessed November 20, 2013, http://www.mass.gov/lwd/docs/dat/benefitschallengesregisteredapprenticeship-508.pdf.

[19] “Co-operative Education,” Drexel University, accessed November 20, 2013, http://www.drexel.edu/difference/co-op/.

[20] “State of Young America: The Poll,” DEMOS and Young Invincibles, accessed December 26, 2013, http://www.demos.org/state-of-young-america

[21] For research that supports a similar methodology see: Sum, Khatiwada, and Palma, Vanishing Work Among U.S. Teens, 2000-10: What a Difference a Decade Makes! Four Million Missing Workers in June 2010 (Boston: Center for Labor Market Studies at Northeastern University, 2010), accessed November 20, 2013, http://www.northeastern.edu/clms/wp-content/uploads/Vanishing_Work_Among_US_Teens.pdf.

[22] Raphael and Winter-Ebmer, “Identifying The Effect of Unemployment on Crime,” Journal of Law and Economics 44, no. 1 (2001): 259-283.

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