Millennials’ Joblessness Costs the Government $8.9 Billion a Year
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The Fiscal Times
January 7, 2014

While much has been made of the plight of the nation’s millennials in the wake of the worst recession and slowest recovery since World War II, far less is known about the economic cost of this employment crisis to federal and state governments.

Young people aged 18 to 34 have struggled with double-digit unemployment rates for almost six years and account for half of the 10.9 million unemployed Americans, according to government figures. The youngest members of this cohort face unemployment rates of 15 to 16 percent, or over twice the 7 percent national average. And many have moved in with their parents and given up looking for work.   

Related: As Millennials Lose Ground, So Will the Economy

  • A new study by the Young Invincibles, a national research and advocacy group for young Americans, concludes that the employment crisis among young people is taking its toll on federal and state governments in the form of lost tax revenue and social welfare costs. Among the key findings of the new report released Tuesday: The total annual cost to federal and state governments for severely high unemployment rates among 18- to 34-year-olds is almost $8.9 billion.

  • If those costs were passed on directly to taxpayers, high unemployment among young adults would add an extra $53 to every American taxpayer's annual federal tax bill. The cost is higher when including state income tax losses.

  • On average, a single unemployed 18- to 24-year-old will cost federal and state governments over $4,100 annually in foregone tax revenue and safety net benefits. That cost grows with the age of the unemployed. One unemployed 25- to 34-year-old represents nearly $9,900 a year in foregone tax revenue and benefits paid – or more than what it would cost to send a state resident to a public college for a year. 

Related: Millennials—No Jobs, In Debt, Still Living at Home

These cost estimates were computed by combining foregone feder­al income taxes (after credits) and Federal Insurance Contribution Act (FICA) taxes with increased expenditures on unemployment insurance and welfare programs.

“While the economy is making progress, millions of young Americans still haven’t felt the benefits—and this problem isn’t just hurting young people, it’s blowing a hole in our budget and could have serious consequences for our country’s future,” Senate Budget Committee Chairwoman Patty Murray (D-WA) said today at a Capitol Hill news conference.

The report said the primary driver of these hidden costs to government is the growing loss of tax revenue, and not the cost of unemployment insurance, welfare and other safety-net programs. Between 80 percent and 90 percent of these governmental costs are due to lost or foregone tax revenue, according to the report.

“When young adult unemployment rates are nearly twice the national average, there’s little doubt that it hurts individuals’ prospects,” said Rory O’Sullivan, the Policy and Research Director of the Young Invincibles. “Now we have the economic evidence showing that everyone suffers through reduced economic output and lower tax revenues.”

Related: How the Generation that Elected Obama Lost Faith

Millennials have received considerable media scrutiny for their Internet addictions, their tendency to move back in with their parents instead of renting their own place, their dead-end jobs born of the financial crisis and the important role they will play in the success or failure of Obamacare.  

This age group’s unemployment problems are manifold, and are not solely due to the impact of a shrinking workforce during recessionary times.

Despite the importance that employers’ attach to higher education, only one in three young people ages 25 to 34 have a four-year college degree, according to the Young Invincibles.  Eventually, about four in ten Americans manage some kind of post-secondary credentials, but that leaves the rest at a competitive disadvantage in landing a job in a highly competitive and fast changing economy.

Unemployment for 15- to 24-year-olds is nearly 16 percent, or twice the national average. College graduates are faring slightly better, but young people with just a high school diploma face unemployment rates of nearly 30 percent.

“There is more demand for skill and education, and young people just by where they’re at have less skill and experience than the typical worker,” O’Sullivan said in an interview. “And we don’t do a very good job of training them out of school to be prepped and ready to go.”

Related: Ten Ways Parents Can Hurt Their Child’s Job Chances

Moreover, an alarming number of young men –black, white and Hispanic – are unable to find work because of the stigma of criminal records and imprisonment.

A new study published Monday by the journal Crime & Delinquency found, “By age 23, 49 percent of black males, 44 percent of Hispanic males and 38 percent of white males have been arrested, which can hurt their ability to find work, go to school and participate fully in their communities.”

The study is an analysis of national survey data from 1997 to 2008 of teenagers and young adults and their arrest histories, which run the gamut from truancy and underage drinking to more serious and violent offenses. The research points to a higher prevalence of arrest among black males.

“A problem that many males – especially black males—are navigating the transition from youth to adulthood with the baggage and difficulties from contact with the criminal justice system,” said Robert Brame, a criminology professor at the University of South Carolina and lead author of the study.

The unemployment rate among blacks overall is 12.5 percent, but is as high as 40 percent among African-American teenagers.

Related: Millennials: Young, Broke, and Spending on Luxury

The millennials were among the biggest losers when Congress allowed the emergency federal unemployment benefits to expire Dec. 28 for 1.3 million of the long-term jobless. Last November, half of all unemployed Americans were under the age of 34, according to government figures. On average, nearly a third of those receiving unemployment benefits are within this age group.

Some economists predict this could have serious long-term consequences for the economy. A Center for American Progress study claims that nearly 1 million unemployed young Americans will lose $22,000 each in earnings over the next ten years.

“Decades of economic data on youth joblessness show that lack of work early in an individual’s career leads to lower future wages and entering the job market during a recession scales up individual challenges to entire generations,” O’Sullivan says. “The data is as solid as it is disturbing.”

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Washington Editor and D.C. Bureau Chief Eric Pianin is a veteran journalist who has covered the federal government, congressional budget and tax issues, and national politics. He spent over 25 years at The Washington Post.