Estimating the cost of youth disengagement in Auckland

Pacheco, GA
Dye, J
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Commissioned Report
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Dept. of Economics, AUT University

There has been growing interest in recent years in the labour market issues that youth face. Youth exclusion, disengagement, and overall underutilisation in the labour market has short term costs to the economy, as well as long term impacts on society. The consequences range from reduced economic productivity to increased criminal activity. We document a rise in the number of NZ youth classified as not in employment, education or training (i.e. NEET). This trend signals increasing difficulties for young people making the transition from education into the labour market. In this report we project the loss to productivity, measured in foregone wages, and the expected cost to public finances for Auckland and NZ NEET as at December 2012. We focus on youth aged 15-24 years, and where data are available report separately for 15-19 and 20-24 year olds. We find the expected per capita cost of each NEET youth aged 15-24 in the Auckland cohort to be approximately $28,981 over the next 1-3 years. The estimated cost is slightly higher than comparable costs for the aggregate group of NZ NEET, due largely to the higher foregone wages of Auckland NEET. Disaggregating our analysis by ethnicity, we find that Auckland NEET youth of Maori and Pacifica descent are associated with a relatively high per capita cost at roughly $33,634 and $26,629 respectively, compared to the analogous figure for their NZ European counterparts of $22,301 (all figures represent the estimated cost over the next 1-3 years). It appears that the difference is a result of the greater propensity of Maori and Pacific Peoples to disengage from the education system earlier, to withdraw from the work force due to caregiving responsibilities at a younger age, and to experience longer durations of unemployment than their NZ European counterparts. The sizeable estimated costs associated with NEET youth highlight the urgent need for policy intervention directed at improving transitions from NEET status to the workforce or further education / training. It should also be noted that these estimated costs are conservative in nature, and do not include expected costs that are difficult to quantify or attribute proportionally to NEET versus non-NEET status, e.g. impact on criminal activity, depression, substance abuse, psychological distress, etc.

New Zealand Work Research Institute, Dept. of Economics Working Paper Series, AUT University. 2013, Report no. 13/04.
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