Does It Affect Me? Negative Externality of High School Dropouts

Mackenzie Arcemont – Honorbound

The Millennials of our generation have a 26% high school dropout rate [1]. Although this rate has decreased, it is still apparent and affects the whole society beyond the individual actually dropping out.

When an action performed by either the consumer or producer affects a third party, it is known as an externality. This externality is defined in Naked Economics as the “gap between private and social cost” [2]. The private cost is paid by the consumer or producer involved in the transaction, while the social cost is paid by the community around which the transaction is taking place. A negative externality occurs when the social cost affecting the third party is greater than the private benefit.

A high school dropout makes approximately $20,241 annually, $10,000 less than a high school graduate and $36,000 less than a bachelor’s degree recipient [1]. Many people who hold a high school or higher degree believe that the problem of high school dropouts does not affect them and question why the government should spend money to increase high school graduation rates. They do not realize that they are the third party in this positive externality. Northeastern University performed a study that showed that high school dropouts cost each taxpayer around $292,000 over the period of their taxpaying lives [1].

When an individual drops out of high school, it affects him or her in the long run because it is more difficult to find a job without a high school diploma. This is an obvious cost to the consumers, the dropouts in this scenario, because they do not make much money for themselves. The outcome of dropping out affects the producers in the American economy, as there are less consumers to buy their goods, which therefore decreases the quantity demanded [3]. Overall, the third party cost, to the society and economy as a whole, outweighs the costs of the private parties, producers and consumers, demonstrating a negative externality in this scenario.

The negative externality that accompanies the high school dropouts affects all American consumers by increasing their taxes. These taxes are put in place to make up for the taxes that the high school dropouts would be paying if they were in higher paying job. High school dropouts affect producers because they have less money to spend and less money to pay taxes on, having a twofold effect on the American economy.

Because many people do not understand what negative externalities are, they do not see how problems in our society affect them. When Wheelan describes the problem of negative externalities, he states that “all of the individuals affected by a market transaction may not all be sitting at the table when the deal is struck” [2]. Through Naked Economics, I discovered the effect that other’s actions have on me and how this expands to the rest of society.

Citations – Image: “Parent Posts | Great Ideas for High School Graduation Gifts | UniversityParent.” Parent Posts. Accessed June 15, 2016.

[1] “Positive Externalities and Education.” PublicEcon -. Accessed June 15, 2016. Externalities and Education.

[2] Wheelan, Charles J. Naked Economics: Undressing the Dismal Science. New York: Norton, 2002.

[3] “High School Dropout Rate: Causes and Costs.” Education Week. Accessed June 15, 2016.


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