Costing the Problem
Being NEET has serious costs for the individual and society. Being NEET has detrimental and long-lasting effects on future employability and future earnings of the individuals. High levels of NEET also have social costs. NEET youth are also often considered to be at risk of problematic psychosocial outcomes given that they are more likely to be coming from disadvantaged backgrounds. The cost of being a NEET is often estimated in public finance costs and resource costs. In this report, we make an estimation based on existing methodologies for estimating the cost of NEET youth simply by looking at the income in lost wages for NEET youth and find that the cost of NEET youth women ranges between 1.62 and 2.49 percent of the GDP while the cost of NEET youth men is less than half of these values and ranges between 0.67 and 0.74 percent of the GDP as of 2017. As detailed under 3.1. Costing the Problem section, since the NEET rate is higher for women, the cost of NEET women is estimated to be higher than NEET men.
Racool_studio. (2020). Office with documents and money accounts [Photograph]. Freepik.
Being NEET has serious costs for the individual and society. Years of youth are the time where individuals improve their human capital by investing in themselves. However, when young people neither are in school nor work, they spend these key years not gaining the valuable human capital or job experience that they will accumulate on and use to build a healthy and successful life in adulthood. Loss of this opportunity to become a more productive version of oneself is also a loss for the communities and economies and create interlinked and negative consequences at different levels.
First and foremost being NEET has negative effects at the individual level. Unemployment is associated with poorer psychological and physical health according to a meta-analysis of 104 empirical studies.⁵³ Apart from unemployment, the inactive NEET youth seems to report even more poorly of their current health status. Using a survey conducted in 33 European countries “disengaged” or “inactive” NEET youth’s self-reported health status was found to be poorer than the non-NEET youth or the unemployed.⁵⁴ The disengaged youth were also found to score less on trust and social activity as well. Being NEET does not only create current problems but has long-lasting and scarring negative effects on health and was found to be associated with poor physical and mental health outcomes years later. The length of NEET spells was found to be positively associated with psychotic drug purchases and inpatient and outpatient mental health service use in Finland.⁵⁵ According to a longitudinal study from Scotland analysing the effect of being NEET 10 years later the risk of depression or anxiety prescription is around 50% higher for the NEET youth compared to non-NEET youth.⁵⁶ Hospitalizations after an emergency care visit are also found to be significantly higher for the NEET youth as well as the prevalence of limiting long term illnesses compared to non-NEET youth 10 years and 20 years later. Another health hazard NEET status creates is a higher incidence of substance abuse. Duration of unemployment was found to be associated with alcohol dependence and substance abuse as well as major depression and lower life satisfaction among youth in New Zealand.⁵⁷ Especially those NEET youth who are not engaged in home production activities either, hence the inactive among the inactive or those who are completely idle, were found to be the most vulnerable group in terms of substance abuse according to a study of the youth aged 19-26 years old in Mexico.⁵⁸
Being NEET has detrimental and long-lasting effects on future employability and future earnings of the individuals. The same longitudinal study from Scotland found that being NEET has a “scarring effect” in employment outcomes as well.⁵⁹ Young people who are NEET in 2001 were found to be 2.8 times as likely to be unemployed or inactive compared to their non-NEET counterparts 10 years later. And the negative effect was found to accumulate such that those who were NEET in both 1991 and 2001 were found to be 9 times more likely to be NEET in 2011 compared to their non-NEET counterparts in 1991. Gregg (2001) also finds a similar effect using data from the UK finding that cumulative unemployment experiences up to age 23 increase the probability to be unemployed in the following years.⁶⁰ Being NEET is also found to constitute a trap according to a study from Mexico such that being NEET today increases the likelihood of being NEET one year later.⁶¹ Youth unemployment was also found to leave a “wage scar” as well. According to a study from the UK, a year of youth unemployment was found to decrease the wage at age 42 by 13-21%.⁶² Another study this time from the US also finds a similar long-lasting effect on earnings showing that six-month unemployment at the age of 22 yielding about a 4 percent earning deficit at the age of 30.⁶³
At a more macro level, high levels of NEET are harmful to society creating large economic costs. NEET youth population have economic costs for the country through (i) foregone productivity, (ii) loss of human capital and (iii) possible increase in public finances (as a result of unemployment benefits or other allowances) in countries where they are available. The economic costs are estimated by different publications as 1% of the aggregate GDP of EU member states and between 0.9% and 1.5% of aggregate GDP of OECD countries.⁶⁴
High levels of NEET also have social costs. NEET youth are at risk of total alienation not only economically but also socially. According to a study conducted in EU countries, NEET youth were found to have lower levels of institutional and interpersonal trust, political engagement and social and civic engagement compared to non-NEET youth.⁶⁵ Increased levels of youth unemployment are also found to be associated with increased levels of crime creating another risk factor for the society. Comparing county-level youth unemployment levels with crime rates, Fougere et al (2009) found that there is a significant positive correlation between youth unemployment and crime rates in burglaries, theft and drug offences.⁶⁶
NEET youth are also often considered to be at risk of problematic psychosocial outcomes given that they are more likely to be coming from disadvantaged backgrounds. One study carried out in Canada shows that mental health problems, addictive behaviours, depression, and involvement in crime are higher among NEET youth.⁶⁷ Research in the UK described the cost of NEET population in the following categories, educational underachievement, unemployment, underemployment, inactivity, early motherhood, crime, poor health status, and substance abuse.⁶⁸
The cost of the NEET population is often estimated in public finance costs and resource costs. Public finance costs are derived from welfare benefits, lost taxes, and national insurance payments. Resource costs are a combination of estimated loss in foregone earnings and welfare losses.⁶⁹ International studies looking at the cost of NEET estimate, for instance, that in the UK, the average per capita cost of NEET population at age 16-18 is as high as 45,000 GBP in resource costs and 52,000 GBP in public finance costs.⁷⁰ A comparative study found that in 2011, the cost of NEETs, in absolute terms, were €32.6 billion in Italy, €22 billion in France, €18 billion in the UK, and €15.7 billion in Spain.⁷¹
OECD’s Society at a Glance report for 2016 uses this approach and using the number of methods estimates that for the year 2014, the foregone income in OECD countries is between 0.9 and 1.5% of the OECD GDP or between USD 360 billion and USD 605 billion.⁷² The report estimates Turkey to have the highest opportunity cost between OECD countries due to having the highest youth NEET rate. The report only reports the lower bound estimate for Turkey which is calculated as 3.4 percent of the GDP for the year 2014. In our report, we build on the OECD model and update the results using more recent data⁷³ and three different assumptions on potential wage rates. In each methodology, different net hourly earnings of NEET youth are used to get a sense of different possibilities and have a range of values. These methodologies are: (i) predicted wage, (ii) mean wage by gender and age group and (iii) minimum wage methods. Details of these methodologies and calculation steps are provided in Annex 2. Methodology Note for Cost of NEET Estimation of this report.
Since the NEET rate is higher for women all three methods estimate the cost of NEET youth women to be higher than NEET youth men. The cost of NEET youth women ranges between 1.62 and 2.49 percent of the GDP while the cost of NEET youth men is less than half of these values and ranges between 0.67 and 0.74 percent of the GDP. In total NEET youth costs Turkey TRY 74 billion (18.5 billion EURO) and TRY 98 billion (24.7 billion EURO) corresponding to 2.37 and 3.16 percent of the GDP.
⁵³ McKee-Ryan, Song, Wanberg, & Kinicki, 2005
⁵⁴ Nordenmark, Gådin, Selander, Sjödin, & Sellström, 2015
⁵⁵ OECD, 2019
⁵⁶ Cox et al., 2015
⁵⁷ Fergusson, McLeod, & Horwood, 2014
⁵⁸ Gutiérrez-García, Benjet, Borges, Ríos, & Medina-Mora, 2018
⁵⁹ Cox et al., 2015
⁶⁰ Gregg, 2001
⁶¹ Ranzani & Rosati, 2013
⁶² Gregg, 2001
⁶³ Mroz & Savage, 2003
⁶⁴ OECD, 2016 ; Eurofound, 2012
⁶⁵ Eurofound, 2012
⁶⁶ Fougère, Pouget, & Kramarz, 2009
⁶⁷ Henderson, Hawke, & Chaim, 2017
⁶⁸ Coles, Godfrey, Keung, Parrott, & Bradshaw, 2010
⁶⁹ Eurofound, 2012
⁷⁰ Godfrey et al., 2002
⁷¹ Eurofound, 2012
⁷² OECD, 2016
⁷³ Turkish Statistical Institute, 2017c
⁷⁴ Turkish Statistical Institute, 2017a
⁷⁵ Exchange rate is taken as 3.97 TL/EURO as the June 2017 exchange rate. eufunding- works/information-contractors-and beneficiaries/exchange-rate-inforeuro_en
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