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Could Tax Credits Increase Employment Opportunities for Young People Aging Out of Foster Care?

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Compared to prior generations, young people today are taking longer to become economically independent, and parents are increasingly providing assistance to their twenty-something adult children.  One important exception to this trend is the 25,000-30,000 young people who age out of foster care each year.  Somewhere between ages 18 and 21, these young people are deemed too old for the child welfare system and are expected to make the transition to adulthood with little to no family or government support.

One of the markers of a successful transition to adulthood is stable employment. Yet study after study has found that young people who aged out of foster care are less likely to be employed and earn less, on average, when they do have jobs than their peers. Moreover, these differences appear to persist well into the early adult years. To help young adults aging out of foster care, we need to complement existing efforts with a new approach, one that focuses on providing incentives to employers to help these youth enter the workforce.

Several factors may contribute to the comparatively poor employment outcomes of young people who aged out of foster care. These include criminal records, drug use, parenting, a variety of emotional and behavioral problems and disorders, a general lack of job readiness and job-retention skills, and an inability to rely on family connections. 

To date, efforts to improve the employment outcomes of young people aging out of foster care have focused on helping youth develop the hard and soft skills needed to succeed in the workplace.  For example, states may use the federal funding they receive through the Chafee Foster Care Independent Living Program to pay for job-readiness training. Unfortunately, few of these efforts have been rigorously evaluated, so we know relatively little about their impact.  

Moreover, this emphasis on human capital development may not be enough.  In particular, employers may be reluctant to hire young people aging out of foster care if they mistakenly believe that youth are placed in foster care for doing something wrong. That reluctance may be even greater when employers have a large pool of job applicants from which they can choose.

Overcoming this reluctance may require an employer-focused strategy, such as a tax credit for hiring young people aging out of foster care.

This incentive-based approach is not without precedent. The federal Work Opportunity Tax Credit (WOTC) was created in 1996 to encourage private-sector businesses to hire members of certain target groups that have historically faced significant barriers to employment.  One of those target groups was 16- to 24-year-olds who resided in empowerment zones, enterprise communities, or renewal communities. 

Two more target groups were added to the WOTC when President Obama signed the American Recovery and Reinvestment Act of 2009unemployed veterans and “disconnected” youth, defined as individuals ages 16 to 24 who lack basic skills and have not been regularly employed or attending school for at least the past six months.

Although youth in foster care are categorically eligible for a number of federal employment programs funded under the Workforce Investment Act, many did not qualify for WOTC as disconnected youth because they had recently attended school. After being allowed to expire for every target group but veterans at the end of 2011, the WOTC was renewed in early January as part of the American Taxpayer Relief Act of 2012 and was extended to include employees living in the Hurricane Sandy disaster area. 

Now Congress should consider identifying youth in foster care as another target group. Offering employers a tax credit will not ensure a job for all young people aging out of foster care.  But it may provide some employers with enough of an incentive to give these young people a chance, putting them on a more equal footing with their peers.  For this to occur, employers, particularly small companies, would need to be educated about the WOTC. It would also help if administration of the WOTC could be simplified, thereby reducing costs.   
Offering employers a tax credit to hire youth in foster care is the right thing for the government to do.  When the state removed these young people from their families for their own protection, it assumed responsibility for their well being. This should include helping to prepare them for a successful transition into adulthood.   

To print a PDF version of this document, click here.

Amy Dworsky, Ph.D., is a senior researcher on the staff of Chapin Hall at the University of Chicago.

Christopher Luecke, MA, is the director of Added Chance.

Both are members of the Workforce Development Task Force for Illinois Foster Youth.

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