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CHAPTER 10 ESTIMATES OF PUBLIC COSTS FOR TEENAGE CHILDBEARING: A REVIEW OF RECENT STUDIES AND ESTIMATES OF 1985 PUBLIC COSTS Martha R. Burt with Frank Levy Teenage childbearing is a "hot topic", not least because legisla- tors, program officials, and the general public are beginning to real- ize the tremendous costs it imposes. During the last 5 years several attempts have been made to obtain good estimates of these costs. Most interest has focused on public costs--AFDC (welfare), food stamps, medical assistance and social services. However, at least one study looks also at private costs. Two studies explore these costs at a national level; four others focus on a single state, county, or other local geog raphical area. These studies use quite varied methodologies and arrive at quite different cost estimates. Some studies calculate the public cost over a 20 year period of the family begun by a single teen birth, and the total cost for the same 20 year period of the cohort of families begun by a teen birth in a single year. They ask, for example, what will the family of a woman who has her first baby as a teenager in 1985 cost the public by the time her first baby reaches adulthood? Estimates range from $13,852 per family (Mecklenburg County, NC, in 1979 dollars) to $18,710 (nationally, in 1979 dollars). The model study of this type is the one conducted by SRI International (1979) for the Population Resource Center. This study estimated that the family begun by each first birth to a teenager in 1979 would eventually cost taxpayers $18,710 (value in 1979 dollars); further, it estimated that all fami- lies begun by first births to teenagers in that year alone would eventually cost taxpayers at least $8.3 billion (in 1979 dollars). Throughout the rest of this paper, these figures will be referred to as Single birth cost" and "single cohort cost," respectively. All but the final section of this chapter was originally prepared by Burt for the Center for Population Options and published by CPO under the title, "Estimates of Public Costs for Teenage Childbearing: A Review of Recent Studies and Estimates of 1985 Public Costs," and is reprinted with the permission of the Center for Population Options. The final section on the uses of these costs in benefit-cost studies was jointly written by Burt and Levy. 264

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265 This methodology uses as its population base all teenagers experi- encing a first birth. Many of these teens will never receive welfare. The cost estimates are averages, spreading the public cost incurred by some teenagers over all teenagers. Therefore, they will be consider- ably lower than estimates which include only welfare recipients as their base. Other studies estimate the total public outlay in a given year that is attributable to teenage childbearing, including expenses for fami- lies in which the first birth occurred when the mother was a teenager, even though she may now be considerably older. Since approximately half of the AFDC caseload at any time consists of families begun by a teen birth, but only 4 percent of these families are headed by women who are currently teenagers, this figure--total public cost for a single year--is very large. The model study of this type, Moore, Wertheimer and Holden (1981), estimated that the public spent $8.6 billion in the single year of 1975 on AFDC, Medicaid and food stamps for families begun by a teen birth. This figure will be referred to as n single year cost" throughout this paper. Table 1 summarizes the costs estimated by the studies reviewed. The remainder of this paper describes the studies reviewed, and dis- cusses the methodological issues they raise. PART T THE STUDIES For each study reviewed, the title of the appropriate document, its authoris), the jurisdiction studied, the data sources and years used, and the dollar estimates developed are given first, followed by a brief description of the report's contents. National Studies Single Birth and Single Cohort Cost Estimates Title: Can Analysis of Government Expenditures Consequent on Teenage - Childbirth. Menlo Park, CA: SRI International, 1979. (37 pages) Authorts): None listed Jurisdiction: Entire United States Data Sources and Yearis): 1976 U.S. nasality statistics; published studies of welfare and other service costs, and studies of probabili ties that families begun by a teen birth will receive these services. All expressed in 1979 dollars.

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266 TABLE 1 Summary of Cost Estimates for Teenage Childbearing from Local and National Studies Single Single Single In Birth Cohort Cost Year Cost Constant Study Cost (in millions) (in millions) 1985 $7 SRI Internationall 18,710 8,300 Not 27,272 estimated Mecklenburg Co., NC2 13,852 12 estimated 20,191 St. Louis3 Not 17,675 82 estimated 21,463 Moore, Wertheimer and Not Not Holden4 estimated estimated 8,550 16.33 bil Wertheimer and MooreS Not Not estimated estimated 5,830 11.14 bil Monroe Co., NY6 Not Not 26 (1977) 0.44 bil estimated estimated 24 (1978) 0.38 bil 1For U.S. as a whole; expressed in present value 1979 dollars. 2 For Mecklenburg County (Charlotte), NC; expressed in present value 1979 dollars. 3For St. Louis city and 8 surrounding counties; expressed in present value 1981 dollars. 4For the U.S. as a whole, expenditures estimated for 1975, in 1975 dollars. 5For U.S. as a whole, expenditures estimated for 1990, in constant 1982 dollars, incorporating the more restrictive eligibility criteria for welfare programs legislated by the Omnibus Budget Reconciliation Act of 1981 (P.L. 97-35). 6For Monroe County (Rochester), NY, actual expenditures for 1977 and 1978. 7Using OMB deflator for payments to individuals. Single Birth Cost: $18,710 Single Cohort Cost: at least $8.3 billion This report serves as the model for many of the local studies de- scribed below. SRI used a variety of published statistics to develop its estimates of cost and welfare and service utilization. Most juris- dictions can develop parallel local statistics and calculate similar cost estimates for local decision making. The major contribution of this study lies in the clarity of its assumptions and in its methodol- ogy. Because these have been adopted in other studies, they are de- scribed here in some detail.

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267 SRI used all births to teenagers, whether married, premarital con- ceptions or out-of-wedlock, on the assumption that births to teenagers under any circumstances increase the risk of public dependency. Their single birth cost is calculated by dividing the total single cohort cost by the number of first births to teenagers. All higher order births to teenagers are treated as extended costs of a first birth to a teenager. They calculated costs separately for three age groups--14 and younger, 15-17, and 18-19--because teenagers giving birth at each age encounter significantly different risks and probabilities for using different services. SRI calculated medical costs for the year of pregnancy and birth and for the next 9 years (but not for years 11-20), because the overwhelming majority of medical costs occurred in those years. Wel- fare costs are calculated for 20 years, including the year of the birth, and adjusted for the probability that the household would still be on AFDC for each year after the first birth. Medical costs included charges for prenatal care, normal, C-section and"complications" de- liveries, normal pediatric care, and pediatric care required because of the special medical problems encountered by some proportion of children born to teens. Welfare costs included AFDC, food stamps and other food programs, social services, and public housing expenditures. Further, SRI discounted further costs. Discounting takes into con- sideration that a dollar in hand today is worth more than a dollar 10 years from now, because it can be used to earn money in the meantime, thereby offsetting some future costs. SRI assumed that a dollar in- vested today could earn an average of 10 percent a year, but that in- flation would absorb 6 percent of that (on the average), leaving a net discounting factor (or real interest rate) of 4 percent, compounded annually. All future year costs of teenage childbirth were discounted by this rate. SRI's figures for Single Birth Cost ($18,710) and Single Cohort Cost ($8.3 billion) are therefore expressed in present values (i.e., discounted) dollars--the amount one would need to commit now to meet the present and future costs associated with a single first birth or a single cohort of first births. Finally, SRI calculated full costs, not marginal costs. See the discussion of Walentik (1983), done for the Danforth Foundation with respect to St. Louis and surrounding counties, to understand the im- plications of this methodological decision. Single Year Cost Estimates , Title: "Teenage Childbearing: Public Sector Costs. n Final Report to the Center for Population Research, NICHD, on Contract No. NO1-HD-92822. Washington, D.C.: The Urban Institute, 1982. (205 pages, plus appendices). Authoris): Richard F. Wertheimer and Kristin A. Moore Jurisdiction: Entire United States . Data Sources and Yearis): Method 1: Current Population Survey (CPS) for March, 1976; Survey of Income and Education, 1976; and AFDC Survey,

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268 1975 were the data bases for cost estimates. The National Longitudinal Survey of Young Women and the Panel Study of Income Dynamics were used to establish probabilities of receiving AFDC, given specific household characteristics. TRIM, the Transfer Income Model, is a computer simu- lation model designed to assign benefits on the basis of household characteristics and income. It was used to produce the cost estimates based on the CPS and the SIE. Method 2: Following this work, a dynamic simulation was run to "age" the population to the year 1990 and assess the welfare status and other characteristics of individuals at that time. Single Year Cost: by Method 1--$8.55 billion for 1975; by Method 2 --$5.83 billion for 1990. This research study's primary goal was to project public sector costs associated with teenage childbearing to the year 1990, using assumptions about welfare eligibility based on the Omnibus Budget Reconciliation Act of 1981's more restrictive provisions, and to simu- late the effects of alternative scenarios on these costs. Among the alternative scenarios tested were: What if births to teenagers under 20 (or under 18) were cut in half? What if only married teens had babies? What if second births to teen mothers were delayed? What if all teen mothers completed high school? For our purposes, the important and widely cited part of this study is its estimate of AFDC, Medicaid and food stamp expenditures in the single year of 1975 that went to families begun be a teen birth (re- gardless of the mother's current age). Throughout the rest of this paper this figure will be referred to as Single year cost. n In 1975 that cost was estimated to be $8.55 billion. This estimate was developed using computer simulations (TRIM, the Transfer Income Model) and several national data sets (the March 1976 Current Population Survey of nearly 50,000 households; the Survey of Income and Education, 1976; and the 1975 AFDC Survey) to derive costs for AFDC and food stamps. Various adjustments were made for the SIE, which underestimates the number of babies present in households-- notably, the SIE was adjusted to conform to the number and distribu- tion of births recorded in vital statistics records for 1976, and for the known total budget for AFDC for that year. Medicaid costs were estimated by applying average Medcaid expenditure for recipients of different ages to the AFDC Survey date. The methodology used in making these estimates is described briefly in Section I and Appendix A of the study's Final Report. This methodology, and the methodology of the larger dynamic simula- tion leading to the figures for 1990, is certainly more sophisticated, and more expensive, than feasible for most local jurisdictions or states to use. Nor is it necessary for local purposes, since this study provides a conservative guideline for calculating local AFDC

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269 expenditures. Regardless of which survey was used as the data base, or whether estimates were adjusted or unadjusted, all methods of cal- culating costs resulted in estimates that 50-56 percent of AFDC costs, or AFDC and food stamp costs, were spent on households begun by a teen birth. Therefore, local efforts to quantify single year costs attri- butable to teenage childbearing could simply assume that 53 percent (or 50 percent, or 56 percent) of the AFDC expenditures for a given year were attributable to teenage childbearing. The same assumption could also reasonably be applied to that proportion of food stamp expenditures that went to AFDC households during a given year. Alternatively, many states are now calculating the proportion of their AFDC caseload attributable to teenage childbearing (that is, the proportion of current cases that involve a family begun by a first birth to a teenager). If a jurisdiction has local figures available on this proportion, the local figures should be used. Local Studies Single Birth and Single Cohort Cost Estimates Title: Financial Report: Adolescent Pregnancy.. Charlotte, NC: Mecklenburg Council on Adolescent Pregnancy, n.d. (probably 19801. (7 pages) Authorts): None listed. Jurisdiction: Mecklenburg County, NC (Charlotte) Data Sources and Yearis): 1979 births and welfare/service cost data . . from county and state agencies and private studies. Single Birth Cost: $13,852 Single Cohort Cost: $11,746,283 This report is very brief and to the point, presenting a Balance sheet" on the public cost of first births to teens in 1979, projected for 20 years. The report follows the methodology developed by SRI International for projecting these costs, including discounting, using only first births in the base year, treating teenagers 14 and younger, 15-17 and 18-19 as separate categories, and using first births to all teenagers (not just out-of-wedlock births). Public costs included were maternity, pediatric and other Medicaid benefits, WTC, AFDC, food stamps, school lunch and day care. (The report did not specify how day care costs were calculated). Total discounted (present value) public costs for 848 first births to teenagers in 1979 were $11,746,283, or $13,852 per first birth. The report also presents another figure--the amount of money that should be "set aside" with each adolescent birth (not just first births) to cover present and future benefit payments. This figure was calculated at $10,250 in 1979. This latter figure is somewhat misleading. It is derived by dividing the Single Cohort Cost Ill, 746,283) by the total number of births in 1979 (1,146), whereas the Single Birth Cost

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270 ($13,852) is derived by dividing the Single Cohort Cost by the number of first births (848) and assuming that second and higher order birth costs are part of the consequence of a first birth that occurred in an earlier year. If, as the report states, the authors followed the SRI methodology, then the Single Cohort Cost should represent the cost of first births, with all their consequences over the next 20 years in- cluding subsequent births while the mother is still a teenager. $13,852 is the amount that should be "set aside" for all first births, and it should cover the cost implications of subsequent births. Title: "Teenage Pregnancy: Economic Costs to the St. Louis Community. n St. Louis, Mo: Danforth Foundation, 1983. (37 pages) Authoris): David S. Walentik Jurisdiction: St. Louis SMSA, consisting of the city of St. Louis, four surrounding Missouri counties and four surrounding Illinois counties. Data Sources and Yearis): 1981 local and Missouri birth statistics, local, Missouri and national costs figures and probabilities of using different services. Single Birth Cost: $14,041 (for each birth, including first, second and higher order births) ($17,675 if you use only first births but the report does not calculate this figure) Single Cohort Cost: $81.8 million This study applied the SRI methodology, with three exceptions, to 1981 data from the St. Louis area. The first exception is that the cost calculations were based on an 18 year rather than a 20 year pro- jection. The second exception is that the calculation of Single Birth Cost was based on the total number of births to teenagers in that year, rather than on first births to teenagers. However, a Single Birth Cost figure comparable to SRI's and to Mecklenburg County's can be calculated from data in the report. The third exception is more critical, and raises an important issue for all studies deriving cost estimates. The St. Louis methodology calculated a marginal cost to teenage pregnancy, whereas the SRI study calculated full cost. The difference is this. Although teenage mothers have an increased probability of welfare dependency, women who have their first birth at age 20 or later still have some probability of receiving welfare, and having other costs of their pregnancy and childrearing borne by the public. Further, most interventions will at best delay births until teenagers reach the age of 20 or more; they will not entirely prevent births. Many personal characteristics of these women predict to some level of welfare dependency even if they succeed in delaying childbearing into their 20's. The St. Louis study sought the marginal increase in public cost attributable to a teen birth, over and above the probable cost to the public of a birth to a non-teenager. The SRI study calculated the full cost borne by the public of a birth to a teenager, without taking into consideration that the public would have some probability of

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271 incurring welfare costs regardless of the age of the mother at first birth. Both figures are important. The full cost figure will obviously be larger than the marginal cost figure; but it would mislead policy makers to infer that the public would save the full cost if teenagers delayed childbearing Rather, they would save the marginal cost. Wertheimer and Moore (1982) estimate that reducing births to women under 20 by 50 percent would save only 20 percent of welfare expendi- tures. Presumably the savings would be close to 40 percent if all such births were eliminated--an unlikely scenario. The discrepancy in re- duced welfare costs occurs because women who experience their first birth when they are 20 or older still have some probability of re- ceiing welfare. Therefore, both figures might be calculated, but used for different purposes. The St. Louis report provides the reader with much more information about teenage sexual activity, pregnancy, pregnancy resolution, child- bearing, marriage and separation, and decreased educational attainment than is contained in the cost calculations. It gives an overview of issues involved in teenage childbearing using national accounts, illu- strated with local data where these are available. By doing this it can serve as a ~primer" in the issues and consequences of teenage childbearing for local decision makers. Single Year Estimates Title: Research on the Societal Consequences of Adolescent Childbearing: Welfare Costs at the Local Level. n Final report on NICHD Contract No. NO1-HD-02838. Washington, D.C.: Bokonon Systems, Inc., 1981. (92 pages, plus appendices) Author ~ s): A. Harvey Block and Susan Dubin Jurisdiction: Monroe County, New York (Rochester) Data Sources and Year ~ s): 1977 and 1978 county data on all public assistance payments to cases open at any time dur ing those 2 years. Single Year Costs: 1977: first-birth-as-teen families: $26.3 million; $5,083 per case no-teen-birth families: $17.5 million; $4,900 per case 1978: first-birth-as-teen families: $24.0 million; $5,533 per case no-teen-birth families: $15.5 million; $5,127 per case This study took advantage of Monroe County's highly automated public assistance data system to make estimates of single year costs attributable to teenage childbearing for the 2 years 1977 and 1978. During those 2 years 11,500 families, with an average 2.5 children

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272 each, had open cases with the Monroe County Department of Social Ser- vices, the vast bulk of which (81 percent) were AFDC cases. 7,021 families appear in both years, suggesting long-term or recurrent wel- fare dependency. This also means that 4,479 families appear on the public assistance rolls during only one of the 2 years, suggesting only short-term dependency. Families begun by a first birth to a teenager comprised S6 percent of the public assistance caseload (59 percent of the AFDC caseload), and absorbed 60 percent of the cost for public welfare programs. They had slightly more children, on the average, than no-teen-birth families (2.6 vs. 2.3 children). Five percent of welfare families were multi- unit families--that is, the youngest family member was the grandchild, rather than the child, of the head of household, and all three genera- tions comprised a single welfare case. Despite encountering some data missing from the computerized system (case and individual identification numbers were not entered on all transactions) the researchers were able to calculate public assistance costs separately for families begun by a teen birth, and for families in which the first birth occurred when the mother was 20 or older. These costs include APDC payments, Medicaid, single issue, emergency and vendor payments, and estimated food stamp costs. 1977 costs for families begun by a teen birth totaled 826.3 million, while no-teen- birth families absorbed $17.5 million in public outlays. Per case costs in 1977 were $5,083 and 64,900 respectively, with the slightly larger families of teenage parents accounting for the difference. 1978 costs were $24.0 million (85,533/case) for families begun by a teen birth, and $15.4 million (S5,127) for no-teen-birth families. The foregoing comparison may imply to some readers that families begun by a teen birth and families begun by a later birth absorb almost the same amount of public funds. After all, a 60/40 ratio does not seem so extreme. This impression is misleading. To provide an accu- rate comparison, per case public expenditures would have to be weighted by the probability that any household of that type would became an AFDC case. According to Moore (1978, Table 2), households begun by a teen birth have a 1 in 4 probability of receiving AFDC, whereas households begun by a later birth have a 1 in 10 probability of receiving AFDC. Applying these ratios to the Monroe County per case costs, the average public expenditure in 1977 for a first-birth-as-teen household would be $1,271 (multiply $5,083 by .25), but the average public expenditure in 1977 for a no-teen-birth household would be only 8490 (multiply $4,900 by .10~. Public expenditures are thus 2.6 times as high for households begun by a teen birth as for other households. An important contribution of this study is its detailing of costs to non-AFDC families. These turned out to be so small, in compar ison to payments to AFDC families, that future studies can justifiably ignore them. Non-AFDC families received only 2 percent of the total public assistance outlays for 1977 and 1978.

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273 Another component of public costs revealed by this study is outlays for emergency, single issue and vendor payments (e.g., for day care, special counseling, WIN training) for AFDC families, over and above the basic AFDC grant, Medicaid and food stamps. In Monroe County this figure amounted to approximately 12 percent of the total outlay for AFDC families, and 13 percent of the combined cost of AFDC (basic grant), Medicaid and food stamps. Jurisdictions vary widely in their use of emergency, single issue and vendor payments. Some jurisdictions never use these "extras"--an AFDC family gets only its basic grant, re- gardless of circumstances. Other jurisdictions use special payments to a greater or lesser extent. Future efforts to estimate public costs might want to use these figures to adjust a basic estimate, if the jurisdiction for which costs are being calculated makes significant use of special payments to AFDC families. This report contains many other elaborate analyses comparing the costs incurred for families begun by a teen birth and families for whom childbearing was delayed beyond the teen years. They are potentially interesting to the specialist, but probably not to the lay reader who wants just the basic cost information. Title: "Teenage Pregnancy and Teenage Parenthood in Illinois: 1979-1983 Costs." Evanston, IL: Northwestern University, Center for Health Services and Policy Research, 1984. (131 pages) Authoris): Janet Reis Jurisdiction: Illinois Data Sources and Yearis): estimates for probabilities for 68 cost items were taken from 14 state or national sources; estimates for cost, and distribution of cost among state, federal, local govern ments, businesses and private individuals were taken from 9 local and state sources, both public and private. All costs are translated into 1983 dollars. Costs for teen births in the years 1979-1983 were e stimated. Single Year Cost (total cost, both public and private): $853 million in 1983 dollars for births to teens that occurred only during the 5 year period 1979-1983. Costs include all costs incurred through 1983 of the five birth cohorts born in the years 1979-1983 (i.e., 5 years of costs for 1979 babies, 4 years of costs for 1980 babies, etc.~. Of this amount, $425 million is public expenditure, f inanced through taxa tion to private individuals and businesses. Businesses are estimated to pay an additional 872 million; private individuals pay the differ ence ($356 million). This is an ambitious study, departing in many ways from the concep- tualizations, purposes and methodologies used in any other study re- viewed in this paper. Major points of departure are: o Inclusion of all costs of raising children, whether borne by private individuals, businesses or governments. This makes the cost estimates much closer to the Cost of kinds research (see Espenshade, 1984) than to other studies of the costs of teenage childbearing.

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274 o Estimates of costs to businesses, other than the business share of the tax burden for public costs. o Inflation of costs estimates for services receiving full or partial federal government support by 21 percent, to compensate for what the author calls the federal income tax penalty--the fact that Illinois citizens pay federal taxes, but don't see all those taxes coming back to the state. Inclusion of elements of both n single year cost" methodologies and "single birth cost" and "single cohort cost" methodologies in the same study (which makes comparing cost figures from this study with those of any other study very difficult). O Recommendations for programs to reduce teen births, and esti- mates of the cost savings these programs would generate. Private as Well as Public Cost of Children . It takes a lot of money to raise children. For most children, their parents pay the expenses of raising them, both in direct cash outlays and in opportunity costs {Espenshade, 1984~. Rich people spend more to raise their children than poor people, therefore in this con- text rich people's children "cost" more than poor people's children. Businesses pay their share, too, through insurance for employees and their families, through taxes for schools and other services for chil- dren, through the cost of crimes committed by children, and so on. The higher the employee's salary, the greater the probable contribu- tion of the employer to the welfare of the employee's children. Chil- dren require expenditures whether or not they are born to teenage mothers. While there is nothing intrinsically wrong with trying to estimate the total expenditures for children, public or private, esti- mates of the total cost of teenage childbearing are better done in the framework of marginal costs.1 Combining public and private expenditures for children appears very confusing from a policy perspective, because the technique pro- duces an estimate of total cost that will increase as the population improves its economic situation (to which reduced teenage childbearing is predicted to contribute), because economically better-off families will spend more on their children. Yet the public share of this in- creasing total will shrink, due to decreased reliance on public wel- fare among more economically viable families. The public focus re- mains the principle concern of policy makers, and studies of cost would best serve both public and other purposes by keeping the dis- tinction between public and private costs clear. Adding to the inflated cost estimate derived from full vs. marginal cost is the researcher's assumption that if a birth does not happen to a teenager, it will never happen at all, and therefore all the cost

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284 TABLE 3 Public Cost of First Births to Teenagers in 1985, and Potential Savings Associated with Delaying these Birthel Age at First Birth 15 15-1 7 18-19 All Teens First Births2 S ingle B i rth Full Cost 9,638 144,308 217,185 371,131 17,724 17,689 11,214 13, 902 Potential Savings3 7,089 7,076 4,485 5,560 20-year S ingle Cohort Full Cost (in billions) .17 2.55 2.44 5.16 Potential Savings (in billions) .07 1.02 0.97 2.06 1 Twenty year projection, covering the years 1985-2004. Cost is expressed in 1985 "present values dollars, which means that this is the amount that would have to be set aside in 1985 to cover the 20 year cost of families begun by first birth to a teenager after taking into consideration inflation and the future earning power of a dollar invested in 1985. 2 1984 nasality statistics were the latest available. The same numbers have been used in the 1985 estimates shown in this table. 3 Calculated at 40 percent of full cost. first birth in Mecklenburg County, NC in 1979. All other things being equal, one would have expected the 1985 estimate to be higher than any of these earlier estimates, simply due to inflation. The major reason for reduced cost is a reduced probability of receiving welfare (see below for an explanation of why this occurred). Thus, changes in the availability of welfare support make a substantial difference in the long-term fiscal consequences of teenage childbearing.

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285 A Comparison Figure: Continuous Welfare Dependency Many people may be surprised that the single birth cost of $13,902 is so low. As explained above, the methodology used to reach this figure was based on all teenagers having a first birth. Many of these teenagers, either as teens or as older women, never go on welfare, or else they depend on welfare for relatively short periods of time (e.g., less than 2 years). This reality contradicts the popular perception that having a baby as a teenager dooms the resulting family to imp mediate and continuous welfare dependency. For many teenagers, such dependency does not happen. Nevertheless, what many people want to know is, "How much does a family begun by a teen birth cost the public when it Is continuously dependent on welfare? n One can develop this comparison projection using a simple modification of the methodology used to arrive at the $13,902 figure. As always, this comparison projection rests on certain assumptions which, if changed, would change the final result. Let us assume: A teenager 14 or younger, who has a first birth; immediately receives welfare for her baby and for subsequent babies; also gets welfare for herself once she becomes an independent head of household; and stays on welfare continously for 10 years; A teenager 15-17, who has a first birth; immediately receives welfare for her baby and for subsequent babies; also gets welfare for herself once she becomes andindependent head of household; and stays on welfare continuously for 7.5 years; 3. A teenager 18-19, who has a first birth, immediately receives welfare for her baby and for subsequent babies; also gets welfare for herself once she becomes an independent head of household; and stays on welfare continuously for 5 years. Discounting public costs in the same way we did for the basic 20- year projection, we arrive at the following figures: the 14 year old would cost the public $46,456 over the assumed 10 year period of wel- fare dependency; the 15-17 year old would cost the public $44,201 over the assumed 7.5 year period of welfare dependency; and the 18 to 19 year-old would cost the public 630,955 over the assumed 5 year period of welfare dependency. Averaging these results--after weighting the figures for the numbers of 14 year olds, 15-17 year olds and 18-19 year olds experiencing a first birth--one arrives at an average, dis- counted figure of 836,502 for a teenager giving birth for the first time and immediately beg inning an extended period of continuous wel- fare dependency (as described in ou r assumpt ions) . This figure of $36,502 may strike many readers as more "reasonable" than the earlier figure of $13,902 that is, as more in line with their

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286 expectations. As noted above, however, it is true only for those teen- agers who actually do use welfare immediately and continuously. Such teenagers do not represent the majority of teenagers having children. SOURCES AND ASSUMPTIONS FOR SINGLE BI RTH AND SINGLE COHORT PUBLIC COST E STI^TE S The approach used was, first, to estimate the cost for a single family begun by a first birth to a teenager in 1985, projected over the 20 year period 1985-2004, and then to multiply that estimate by the number of first births to teens in 1985 to get the cohort cost esti- mate. Following the SRI methodology, cost was estimated separately for teenagers experiencing their first birth at age 14 or younger, at age 15-17, and age 18-19, order to reflect the very different health and dependency risks entailed by births at these different ages. Basic Assumptions--Completed Family Size Since a 20 year projection traces a teenager's childbearing career from the time of her first birth, counting subsequent children (and their associated cost) as part of the cost of an initial teen birth, some assumption about the number and timing of subsequent births is necessary. Wertheimer and Moore's (1982, Table 20) estimates were used for this purpose. These estimates are that teens who had their first baby at 17 or younger would have 2.1 children by age 22, 2.8 children by age 27, and 3.2 children by age 32. Teens whose first child was born when they were 18 or 19 would have 1.6 children by age 22, 2.4 by age 27, and 2.8 by age 32. These figures were used to calculate annual average increases in family size, which in turn were used when calcu- lating-the number of household members eligible for AFDC, food stamp and Medicaid support, and when to add extra medical expenses asso- ciated wth pregnancy and childbearing. Basic Assumptions -- Probability of Receiving Welfare For teenagers (age 19 or younger), the probability used is .34 (Moore, 1978~. The rest of the probabilities come from Wertheimer and Moore (1982, Table 41-A, Baseline scenario), which does not estimate the probability for teenagers. For women whose first child was born when they were 17 or younger, these probabilities are: .20 when they are 20-24; .16 when they are 25-29; .02 when they reach age 30 and older. For women 18 or 19 at first birth, the probabilities are: .15 when they are 20-24; .09 when they are 25-29; and .03 when they are 30 and older. Applying these probabilities is quite straightforward if one is estimating costs only for 18 year olds, or only for 15 year olds. How- ever, the methodology used in this paper combines teenagers of differ- ent ages together and estimates costs for 15-17 year olds and for 18-19

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287 year odds. This approach requires some adjustments in the "transition years." For example, among 15-17 year olds, in the third year of the projection, when the 17 year olds have turned 20 (and thus would be subject to a probability of welfare receipt of .20), the teens who were initially 15 and 16 years old are only 18 and 19, respectively {and thus the .34 probability of welfare receipt is stil applicable to them). Therefore, the probability of welfare receipt used for the third year of the projection will be the average of the probabilities for each age, weighted by the proportion of the larger group (15-17 year olds) who are each age {i.e., 15, or 16, or 17~. The same sort of adjustment must be made for each year that part of the group is old enough for the next applicable probability, but part of the group is not. In the years of the projection when women are 20 and older, these probabilities are lower (by 4-15 percent, depending on the woman's age and age at first birth) than those used by 5RI and the other studies using the SRI method, because the estimates incorporate the more re- strictive welfare eligibility criteria required by the Omnibus Budget Reconciliation Act of 1981. The biggest difference made by these new criteria involves the amount a head of household could earn and still retain her eligibility for AFDC and Medicaid. When the stricter cri- teria took effect in 1982, this amount was reduced significantly, and many households receiving some income through earnings were removed from the AFDC rolls. In the present calculations, the changes in eli- gibility requirements for AFDC affect the estimate of total cost and the estimate of marg inal savings. Basic Assumptions--Number of First Births to Teenagers 9,638 first births to girls 14 and younger, 144,308 first births to 15- 17 year olds, and 217,185 f irst births to 18-19 year olds. These fig- ures are taken from 1984 nasality data (NCHS, 1986, Table 21. 1984 data are the latest available, and 1985 figures have been assumed to be similar. Basic Assumptions--Inflation and Discount Rates Inflation is assumed to average 5 percent per year over the 20 years involved in these projections. Money invested in 1985 is assumed to grow at a real interest rate (after accounting for inflation) of 4 percent per year, compounded annually. Thus 4 percent is used as the discount rate. This practice follows the discounting example of SRI International (1979~.

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288 Basic Assumptions--Potential Savings The potential savings from reducing or eliminating teenage childbear- ing is assumed to be 40 percent of the full public cost of teenage childbearing. This figure (40 percent) is derived from Wertheimer and Moore (1982), who used dynamic simulation techniques to estimate the probable effect on welfare expenditures of several scenarios related to teenage childbearing. The greatest savings (20 percent) were achieved under a scenario in which births to women under 20 were re- duced by half. Double savings (i.e., 40 percent rather than 20 per- cent) are assumed to result from doubling the reduction in teenage childbearing (from a 50 percent reduction to a 100 percent reduction). Cost Data AFDC cost: $113 per recipient per month, estimated for 1985 (WMCP, Section 8, Table 17~. The same source indicates an anticipated 1.8 percent annual increase in the benefit per recipient. Since inflation is assumed to be 5 percent per year, this means that the value of the AFDC benefit loses ground to inflation at a rate of 3.2 percent per year. Its value has been reduced appropriately for the years 1986-2004. Food stamp cost: $42.80 per recipient per month in 1984 (WMCP, Appendix G. Table 1~. Assumed to rise 2 percent per year (actual increase indexed to the food component of the Consumer Price Index), therefore the 1985 figure used was 843.66. For years following 1985, the per recipient cost was reduced by 3 percent per year (5 percent inflation minus 2 percent increase in food stamp allocation). All adjusted for 12 percent administrative costs, and for a 75 percent participation rate of AFDC households in the food stamp program (WMCP, Appendix G. Table 1 and Section 8, Table 18~. Annual Medicaid cost: 1984 was the latest year for which figures were available from the Medicaid Hotline (Social Security Administra- tion), which summarizes the states' annual 20-A-2 reports and gives information over the telephone. Each AFDC child cost Medicaid $414 in 1984, while each AFDC adult cost Medicaid $847. These figures have been increased to $435 and $889 for 1985, based on an assump- tion of a 5 percent increase in Medicaid outlays. As explained in relation to Table 2, this is a conservative assumption, since real medical costs, and Medicaid costs, have been increasing an average of 8-12 percent per year. The 5 percent inflation rate and the 5 percent increase in medical cost outlays cancel each other out, so 8435 and $889 will be used as Medicaid cost outlays for all 20 years of the present projections. Medicaid costs associated with births: These calculations used 83,107 as the cost borne by Medicaid (including prenatal care costs) for

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289 birth to a teenager 14 or younger; 82,867 as the cost for 15-17 year olds; $2,397 as the cost for 18-19 year olds, and $2,446 as the cost for women 20 and older. These figures are an average of costs estimated by three different studies: Walentik (1983~; Wertheimer and Moore (1982, Appendix B); and Burt et al. (1984~. These costs were multiplied by the probability of a birth to produce the birth cost associated with each year of the 20 year projection. Social services cost: Was assumed to be 5 percent of AFDC cost, fol- lowing Walentik's (1983) logic and example. Public housing cost: Was assumed to be 2 percent of APDC cost, fol- lowing Walentik's (1983) and SRI International's (1979) examples. APDC/food stamp/Medicaid administrative cost: APDC and food stamp administrative costs were calculated using 12 percent of direct benefits, based on historical precedent. Medicaid administrative costs were calculated at 5 percent of benefits, also based on historical data. USING THE COSTS IN BENEFIT-COST ANALYSIS2 The public costs of teenage childbearing are rarely calculated as ends in themselves. Typically they are gathered to bolster the argu- ment for preventive programs--sex education, counseling, providing contraception, and so on. But which programs should be chosen? From an economic perspective, certain rules apply for making these choices even when budgets are plentiful. Suppose we def ine the Net Benef its of a program in the following way: A program's = the dollar value of the program' s benefit net benefits - the dollar value of the program's costs No matter how large an agency's budget, no program should be under- taken unless its Net Benefits are positive--iee., unless the value of its benefits exceeds its costs. When budgets are tight, the problem becomes harder. Now the administrator should select those particular programs that produce the greatest Net Benefits. While all this sounds fine in theory, in practice it is not so easy. In fact there are no perfect formulas, but it is possible to give some general ideas and numbers that will help administrators to examine their own options. In most situations, the most defensible perspective to adopt for cost-benefit analysis is the taxpayers's perspective: how many public dollars will this program save? This means that if a program benefit is to be counted, it must be translated into reduced public dollars. Lowering the rate of pregnancy must be translated into reduced welfare

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290 and medical costs. Staying in school longer must be translated into postponements of pregnancy and higher likelihood of employment which must again be translated into reduced welfare and medical costs. And so on. While this strategy may be confining, it provides a consistent way to think about program evaluation. MEASURING PROGRAM BENEFITS A typical program does not keep records in terms of "public costs saved. n Rather it is likely to generate information of the following kind: When compared to normal expectations {or to a control group) 16 year-old girls were 20% less likely to have a first pregnancy during the year they were in the program. Or, B) When compared to normal expectations (or to a control group), 17 and 18 year-old mothers were 15% less likely to have a second pregnancy during the 18 months following program participation. How do either of these statements translate into dollar benefits? Begin with statement (A). Recent estimates by Burt suggest that in 1985, the present discounted value of future public costs associa- ted wit-in a first teenage birth are: TABLE 4 -Present Discounted Value of Future Public Costs Associated with a First Teenage Birth Age at First Birth 15 16 17 18 19 Public Expenditures $18,130 $17,851 $17,464 $12,214 $10,671 These costs include assumptions about subsequent births, the like- lihood the woman receives AFDC, etc., as explained earlier in this chapter. They reduce with each year a first birth is postponed be- cause of reduced probabilities of receiving welfare, smaller completed family size, and fewer medical complications for later childbearers.

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or 291 Statement {A) does not say what happens after the year the girls were in the program. We will begin with a conservative interpreta- tion. Suppose that the program only succeeds in postponing the girl's f irst pregnancy for a year while her total number of children, her chances of completing h igh school, eta ., are the same as those of teenagers not participating in the program. What public costs have been saved? The answer is straightfoward, but also involves discounting. If the girl had her first child this year, we would be confronted with public costs whose present value totals $17, 851. This means that by putting $17,851 in the bank this year, we would generate enough revenue to cover all future costs. If the girl has her first child next year, at age 17, the same logic holds except that now the process is postponed for a year and we need to deposit $17,464 in the bank for next year to cover all future public costs. With current interest rates at about 7 percent, it follows that to build up the $17,464 for next year, we need to deposit an amount this year, C, which solves the equation: C x ~ 1. 07) = $1 7, 464 C = 17, 464 = $16, 321 1.07 (1) (2) Thus, if the girl has her first birth this year, (at age 16), we have to commit $17,851 this year to cover future costs. If the girl has her first birth next year, we have to commit $16,321 this year which will grow into $17,464 by next year and will be sufficient at that time to cover the costs. Thus postponing the first birth by one year has saved us $1,530 ($17,851 - $16,321), assuming we really do commit the money this year and actually get a 7 percent rate of interest. To come plete the example, if girls in the program are 20 percent less likely to have a first pregnancy during the year they were in the program, then the expected savings per girl is .2 x $1,530 = $306 and if the program is worth any consideration, program costs per participant must be less than this amount. If we make the same calculations for a postponement from age 16 to 18, or from 17 to 18, we obtain public savings of $7,182 and 86,049, respectively. It is apparent from these data that the biggest savings will be associated with postponing a first birth until 18 or 19 (or even later). A delay from age 16 to age 17 will save $1,530. But a delay from 16 to 18, implying also high school completion, will save $7,182: $12,214 / (1.07~2 = 10,668; $17,851 - $10,668 = $7,182. Even the one-year delay from 17 to 18 is quite Valuable, saving 66,049: $12,214 / 1.07 = $11,415; $17,464 - $11,415 = $6,049. Since many more 17 year olds than 15 year olds give birth, this implies that program efforts will have more payoff in terms of cost effectiveness if they focus on helping 17 year aids delay childbear ing for one year.

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or 292 Turning to statement (B)--the postponement of second pregnancies-- we can see that the methodology is the same but the costs are dif- ferent. The future public costs of moving from one to two children are less than the costs of moving from no children to one. These costs have not been estimated, but the same methodology could be adapted to do so. SIMPLE BREAK-ElIEN ANALYST S The previous examples began with a distinct advantage. We knew what impact the program had on postponing pregnancies. In many cases, this information is precisely what we do not know. In this case, a limited analysis is still possible. We cannot do a complete estima- tion of Net Benefits--that is, the dollar value of benefits less costs. But we can examine the possibility that benefits exceed costs and therefore that the program is worth undertaking at all. Suppose that we estimate that it costs $16 to have a young woman participate in a series of family life education classes. And suppose (following the discussion above) that we determine the public cost savings of postponing a first pregnancy for a year for a 16 year old is $1,530. It follows that if the program benefits are to exceed costs, the program must cause at least 1 out of every N participants to postpone a pregnancy where N solves the following equation: $1,530 = N x $16 N = 96 (3) Put differently, if 96 girls participate in the program, the total program costs will be 96 x $16 or $1,536. As long as one of these par- ticipants postpones a pregnancy, the savings in public cost will be $1,530. In this case, the program would just break even in terms of net benefits. If more than one participant postpones pregnancy, the Net Benefits are that much larger. In many situations, this kind of "break-even" analysis may be help- ful. For while an administrator may not know a program's precise effectiveness, she or he may have a rough sense of its effectiveness and so may know whether the break-even N. calculated in (3), is at all plausible. For example, if a particular program leads to a break-even N of one postponed pregnancy for every three participants, the adminis- trator may know that such effectiveness is impossible and so the pro- gram should not be undertaken. Conversely, if a different program has a break-even N of one postponed pregnancy for every 600 participants, the program administrator may feel that number is quite plausible and this will make the program worth pursuing.

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293 GLOSSARY Discounting -- Reducing a nominal cost for a future year by the amount that money invested now could earn by that year, adjusting for inflation. Full Cost -- The actual, or present value, public dollar outlays for families begun by a teen birth, not adjusted for the probability that families begun by births to women 20 or older also have some probability of receiving welfare and other publicly supported services. Marginal Cost -- The cost to the public of teen births, over and above the costs the public would incur for families begun by a later birth. This marginal cost is thus the full cost of teen births, minus the full cost for later births. Single Birth Cost -- The cost to the public of the family begun by a single teenage birth, from the pregnancy through the time the baby becomes an adult (20 years, in most calculations). Single Cohort Cost -- The cost to the public of all such families begun by teenage births in a single year, for the 20 years that the teenage mothe r and he r baby may be dependent on publ ic support. This f igure equals the single birth cost multiplied by the number of first births to teenagers in a given year (cohort). S ingle Year Cost -- The cost to the public during a single year to support all families begun by a teen birth (although the mother in most cases will no longer be a teenger). Note s 1 For example , D illard and Po 1 ~ 1982) assume tht teenage childbearing results in marginally larger families, less education and poorer earn- ing capacity of teenage mothers. Their estimates of the cost of teen- age childbearing, over and above the cost of any childbearing, are based on the extra child the teen mother is likely to have, the oppor- tunity cost associated with not being able to enter the labor force as soon as a mother with fewer children, and the lower wages she will earn when she is in the labor force. This marginal cost turns out to be $37,050 for a poor teenage mother, in addition to the $61,613 cost for a poor mother who did not have a baby as a teenager. This marginal cost, while still substantial, is considerably less than the almost $100,000 that would be implied by using the methodology of the Illinois study. 2 Frank Levy contributed the basic outline and concepts of this sec- tion. Burt contributed the estimates for public costs of teenage childbearing.

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