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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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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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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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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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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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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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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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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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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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Representative terms from entire chapter:
teen birth
