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Zoe Hart from Colchester Royal Grammar School was the winner of the Royal Economic Society Young Economist of the Year 2007.
Her winning essay is reproduced below.
Note: sources and references are provided in [square brackets]
Reproduced with the kind permission of Zoe Hart
RES YOUNG ECONOMIST OF THE YEAR 2007
Children having children
The UK has the highest teenage birth rate in Western Europe. Twice as high as Germany, three times as high as France, and six times as high as the Netherlands. With over 40 000 girls under the age of 18 conceiving in the year 2000, it’s not surprising that the government felt it necessary to pledge to halve the rate of teenage pregnancies by 2010. However, they reached the half-way marker in 2005 with a 3% increase  – are their policies aimed at long term reductions or have they not quite found the answer to this problem yet?
With an ageing population such as ours, some struggle to see how such high rates of teenage pregnancy are detrimental to our country’s economy—shouldn’t they help to ease our ever growing dependency ratio? However, when you consider that teenage mums cost the USA $9.1 billion  in 2004, it seems a bit of a pricey way to boost the labour force. What’s more, in the short run, teenage pregnancy is a trend which is reducing our economically active population and even in the long run, it is debateable as to whether these births can ever actually increase our work force. Teenage mums are often themselves born to teenage parents  so if this vicious circle continues, the next generation will always be entering the maternity ward and never the workplace.
The private costs of bringing up a child have been estimated recently at £166,000 . Furthermore, the time and sleep lost as a result of being a parent can seriously reduce someone’s quality of life, especially if the parents are just children themselves. The perceived costs of having a child seem severely undervalued by the youths of today, as shown by the fact that 90% of teenage mums rely on benefits to survive.  Although it is likely that these teenagers are simply underestimating the costs of raising a child, it is arguable that some are, in fact, rationally choosing to opt for benefits as a potential source of revenue. While the benefits available to a teenage mum are by no means luxurious, are they that much lower than an unskilled wage?
In addition to the aforementioned private costs, there are also social costs that these teens inflict upon the taxpayer—negative externalities if you will, which contribute to the UK’s PSNCR. These primarily include benefits given from the welfare state, such as a £100,000 course funded by the British public allowing teenage mums as young as 14 to take classes in anything from claiming benefits to writing a CV and understanding the dangers of smoking during pregnancy. Each student is paid £30 a week to attend - and receives a £100 bonus if she completes the 16-week course without missing a lesson. Could that £100,000 not be used to help prevent such pregnancies occurring in the first place?
Further social costs include the loss in tax revenue caused by the majority of teenage mothers remaining unemployed until their child has grown up, caused in part by the high cost of childcare in the UK.
The loss in tax revenue caused by these teenage mums taking maternity leave before they’ve even started work can be seen to have an effect on the UK’s labour market. Our country’s labour force is described as “the least skilled, least trained, least numerate and least literate” in Europe  and by cutting their education short, these girls are further reducing the supply of skilled workers. Whilst the focus falls mainly on the mothers, it is necessary to note that it is not uncommon for the fathers to feel that they too must leave school before completion and find a job to support their new family. The effect of failing to complete their education can be considered in terms of productivity as it causes a negative shift in the marginal physical product of the workers, reducing long term productivity.
Understandably, leaving school at such a young age would mean that you might require financial help in your life but studies undertaken by Stanford University Law Professor Deborah Rhode in 1993 suggest that “most young mothers leave school before becoming pregnant, rather than the converse, and that mothers who give birth while in school are as likely to graduate as their peers.” If this is true, it would suggest that opportunities for youths today who do not wish to attend university are limited, and teenage pregnancy is, perhaps, a more favourable option than a lifetime of minimum wage.
The government maintain that the cause of our alarmingly high teenage pregnancy rate is the information failure caused by lack of sexual education in schools. Statistics show the UK’s contraceptive use to be 35% lower than that of the Netherlands and it is thought that under 18s as an age group are myopic, only considering the short term consequences and benefits of their actions.
Contraception is a merit good and is therefore under consumed in a free market, so, naturally, the government are trying hard to promote it. Projects such as the “Condoms: Essential Wear”  magazine adverts are no doubt having an affect, in addition to the tax cuts on contraceptives, but presumably only on those teenage pregnancies that really are “accidents”.
The government response in the past has been to allocate benefits to those teenage mums who require them but did they realise this was funding a new career path for young girls? “Teenage Mum Bsc” BSc standing for Benefit Scrounger. Girls as young as 14 have hit the headlines for leaving school and excitedly waiting for the birth of their second child just so they can move into their own council flat. It was revealed by channel 4’s “Wife Swap” that one couple featured were receiving from benefits the same as what someone with a pre-tax salary of around £50,000 would be earning . With one third of homes dependant on benefits for half their income [11[, is it time for a reform of the welfare state?
One must also consider the impact of the poverty trap, the most likely cause of the aforementioned couple’s situation. This is where a person reduces their net income by taking a job which disqualifies them from the social security they claim or raises their tax levels. Knowing that the welfare state will support you, and that it will even reward you for having more children provides further incentive to be a teenage mum.
On a social level one must sympathise with the struggle of being a young parent, but from an economic point of view, the fact that 1 in 5 teen pregnancies is a second birth suggests that these pregnancies are no accident. It is proposed that the real cause of teenage pregnancies is rational choice. The theory of rational choice argues that people make economic decisions to maximise their utility, and so whilst these girls are being deemed as uneducated, perhaps we should consider their superior intelligence for recognising the possibility of utility maximisation through benefits.
France, however, has a far more generous system of benefits for families, offering a “Carte Familles Nombreuses”  to give parents considerable discounts. So why is their teenage pregnancy rate only half that of ours? It is believed that their popular system of apprenticeships means that even those who don’t want to go to university, or who can’t afford to do so, can still earn a decent wage with the skills that they acquire. In the UK, however, there is a much more noticeable divide in salaries between those who continue into further education and those who do not.
Our government has, however, begun to combat the growing dependency on benefits by improving the system of working tax credits which seeks to encourage people to work rather than claim. John Hutton, Secretary of State for Work and Pensions, said he wanted to cut the number of single parents who move “seamlessly onto incapacity benefit” once their children turn 16, instead of returning to work as it is estimated that currently a third of lone parents are guilty of this.  By pledging to cover 80%  of childcare costs, it is thought that the government will cause a significant increase in the number of teenage mums who do return to work as childcare costs represent roughly a quarter of the cost of raising a child, making them one of the most influential deterrents for those thinking of returning to work.
In conclusion, whilst the government is taking steps to reduce the problem of teenage pregnancy, which is one of significant concern in the UK, they are a long way from meeting their targets. Although they may recognise that many teenage pregnancies are planned (or at least that teenagers do not always try to be careful), their policies to date to reduce these pregnancies are failing to make an impact. Perhaps the government should provide greater incentives to avoid pregnancy, by providing greater opportunities for teenagers so that young people can live their own lives before creating new ones.
Table: The facts
40 000 — the number of girls under the 18 conceiving in the year 2000
$9.1 billion — the cost of teenage mums to the US economy in 2004
£166,000 — the private costs of raising a child in the UK until they reach their 21st birthday
90% — the percentage of teenage mums who rely on benefits to survive
1 in 5 — the proportion of teenage pregnancies that are second conceptions
80% — the percentage of childcare costs that the government now cover
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