The value of national service might seem clear. But it’s important to make an economic case. In fact, an understanding of the economics of national service can help us promote service and should help make it more effective. More generally, it also shows how service might be an important response to broad social and economic trends.

Individuals contribute to their communities in many ways—through direct labor, financial support, and in-kind resources—and across many sectors. From an economic perspective, it’s helpful to divide these pathways into two categories: service and volunteering. Formal service might be compensated and follow routines that resemble regular jobs; it often addresses a specific objective or adheres to a social mission. Volunteering is typically unpaid, informal, and of shorter or intermittent duration; it involves more general tasks or responsibilities, many of which are for religious organizations.

Service is far smaller in scale than volunteering. More than a quarter of American adults over 25 volunteer—the equivalent of almost nine million full-time workers, or 6 percent of the U.S. labor force. By contrast, a generous estimate of the number of people involved in service (including all federal and state Corps programs, as well as independent ones such as Habitat for Humanity, Teach For America, YouthBuild, and City Year) is fewer than 200,000 persons. Whereas the economics of volunteering is largely uncharted, we do have a sense of the costs and benefits of national service.

Assessing the economics of national service involves determining optimal amounts of public investment, deciding on cost-effective programs, and creating incentives for people to serve. On the latter two fronts, there is still much we don’t know and that we continue to study. But at least for the first matter, the main subject of this essay, we have a good idea of the answer—and it’s almost certainly not the current level of investment.

Deciding on the optimal amount of investment requires cost-benefit analysis. Straightforward by name—compare the costs of a program with its benefits and invest in it so long as the latter outweigh the former—cost-benefit analysis is more tricky in practice. It requires extensive data, information on associations between a service and its economic impacts, and application of shadow-pricing techniques to put a dollar value on outcomes from service.

In a recent analysis, I looked at the main national service programs across the United States. (The full report is available from the Center for Benefit-Cost Studies in Education at Teachers College, Columbia University.) Among youth, there are annual full-time equivalents of 56,000 participants across the AmeriCorps programs, 18,000 in the National Guard Youth Challenge, 7,000 in YouthBuild, and 9,000 in Teach For America—just 90,000 people overall. Among seniors, Senior Corps and Experience Corps enroll the equivalent of 45,000 full-time members. What are the costs and benefits of these programs?

Direct public funding for these programs is $1.4 billion per year. If we include additional in-kind resources and funding, the total social cost comes out to more than $2 billion. (Often, people think that the leveraged amount—the amount raised from outside sources—is an indicator of benefits. But it isn’t—it falls under the cost side of the ledger.)

Tallying the benefits is more complicated. In addition to providing immediate value to recipients, service also has benefits for participants, especially for groups at life “transition points,” specifically young people and retirees. For youth, service helps develop skills and reconnects them with their communities—particularly vital in the wake of a Great Recession that has worsened social ties among the young. For retirees, many of whom have experience and skills that make them productive contributors, service offers the opportunity for “encore” careers, as well as personal fulfillment and greater financial security.

Early economic evaluations of national service have typically focused on the value of the time spent by the participants in relation to the output provided. The value of service is reflected in whatever it would have cost to buy this output privately. This approach is too conservative—it discounts all the future benefits from these programs, treating them essentially as make-work schemes. It also presumes that participants regard their service time as if it were a job. With such a narrow focus, this type of analysis of national service is unlikely to conclude that it yields a positive return on investment.

But widening the analysis to include the comprehensive set of benefits of service results in a more accurate reading. Studies of AmeriCorps, for example, have found a significant upgrading of skills and human capital, as well as gains in civic engagement and improvements in community infrastructure. For youth, there are substantial future benefits from gains in human capital and from behavioral change (including lower delinquency, a greater sense of worth, and improved health status). National service has also been associated with lower criminal activity. These gains can be valued by looking at lifetime incomes as well as crime and health burdens. Finally, there are spillovers: Conservation or crime-prevention projects may lead to increased property values and encourage investment in civic infrastructure. Mentoring programs may motivate students to invest more in their education and communities to make greater investments in their schools. Among those in Senior Corps or Experience Corps, gains in health (physical and psychological), self-esteem, life satisfaction, and civic capital have been seen. There are also gains in financial security (from expanded employment opportunities subsequent to service). Communities, meanwhile, stand to gain from improvements in local services—most notably in schools—as many seniors provide tutoring and educational assistance. And society and taxpayers benefit from a healthier population, particularly one that is more civically minded and productive.

We can add up the benefits of service and express them in monetary terms so they can be compared to the $2 billion cost of service. For the youth and senior programs listed above, we calculated the total social benefits of national service at $7.9 billion. On net, the gain from national service is therefore $5.9 billion. In other words, for every dollar invested in national service programs for youth and seniors, almost $4 are returned to society in future benefits.

Just taking into account funding from taxpayers, the commitment to national service is $1.4 billion annually. In return, the taxpayer receives extra income tax revenue and spends less on social programs to ameliorate disadvantage, poor health, and other social ills. These taxpayer returns amount to $2.9 billion, yielding a net gain of $1.5 billion. For every tax dollar spent on national service, more than $2 are returned in tax revenue.

These results are almost certainly conservative—the returns would be much higher if all the benefits of service were counted. One such benefit is greater civic engagement, which not only improves the functioning of government but also creates social cohesion. And when services are directed toward disadvantaged communities and service members work together, another benefit is greater equity. Neither of these benefits can as yet be accurately monetized.

That national service is a good social investment is no surprise. Eight prior cost-benefit analyses of AmeriCorps found the same result. Related training and workforce-development programs have found similar-sized returns. The federal Job Corps has been found to reduce crime, increase educational attainment, and increase employment prospects for youth; conservatively, its benefit-cost ratio is two-to-one. (Caveat emptor: Comparing ratios is not an exact science, as costs and benefits are often measured differently across programs.)

All this evidence strongly suggests that we are investing too little in national service. Our current investment is too little from a social perspective (for those who value promotion of the social good) and it is too little from a fiscal perspective (for those who are interested in efficient use of government resources). And this leaves aside the fact that national service can be justified even if it does not pass a cost-benefit test: Encouraging citizens to help their communities might be something taxpayers are willing to pay for out of pocket.

Expanding service programs is likely to generate even greater gains than our calculations show. The potential for service is enormous. There are about 40 million young people between the ages of 16 and 24 in the United States; more than six million of these youth are in neither school, college, nor work. There are more than 43 million people of retirement age. Total annual philanthropic funds in the United States come to more than $300 billion—compare this to the $1-2 billion spent annually for national service. Moreover, most service programs could easily expand and thereby reduce the cost per service member. Currently, most programs operate at a very small scale (a few hundred participants), and few national programs operate in all 50 states. If service was expanded—as expected through the Serve America Act—the return on investment would likely increase. And as initial service induces further service and prompts others to participate, expansion would likely create a virtuous circle of investment.

Of course, cost-benefit analysis is only one component of the economics of national service. On the other two—cost-effectiveness and incentives—we are much more in the dark. There are moves toward evaluating cost-effectiveness across service programs, but few agencies have the capacity to conduct such analyses, and the system of program evaluation needs to be strengthened.

Meanwhile, studies of incentives show some promise. They suggest that many individuals are unaware of the possibility of doing service; that social and peer norms can be very influential; and that there are some policy options to encourage donations. Given the gulf between service and potential, we need a multifaceted approach that involves not only direct programs but also public investments to leverage private support through matching grants, subsidies, and public-private partnerships. One promising idea, proposed by Georgia Representative John Lewis, is to change the tax code to make service programs more valuable for participants. Implementing these policies would make good on President Obama’s pledge to “encourage a renewed spirit of national service for this and future generations.”

Looking beyond the specifics, developing national service would help the nation adapt to broader social and economic trends that neither the private market nor the general government apparatus can properly address. For instance, the market and government cannot always fully and flexibly respond to environmental challenges—consider how an organization like Hurricane Sandy New Jersey Relief Fund sprang to action in the wake of that catastrophe, or how AmeriCares responded to the Gulf Oil Spill of 2010. Nor do they typically provide the sense of personal support that volunteers provide (for example, reading to struggling students). Unlike a ready and prepared citizenry, markets and governments cannot always or easily respond to community needs, whether they are driven by weak civic infrastructure, failing public schools, absent family members, or environmental blight.

Looking ahead, we can see additional reasons why this flexibility might be more valuable. One immediate circumstance is the retirement of the baby boomer generation: The first boomers turned 65 in 2011 and the last of the boomers will do so in 2029. Given both its size and the trend toward increasing longevity, this generation represents a major service market, on both the demand and supply sides. As boomers grow older, they will need care and support within their communities. At the same time, as boomers live longer, they will be able to provide care to others if they receive organizational support.

The need for national service for youth is equally pressing. Many young people fail to prosper in school (the high-school dropout rate is about one in five) and many others struggle in college. Yet as much as these youth need greater cognitive skills, they need noncognitive or socio-emotional skills to an even greater extent. Decades of school reforms and volumes of school effectiveness literature have produced very thin gruel as to what would help these students learn more efficiently. Rather than repeating an academic program or retaking it in a novel way, many of these youth would benefit from the structure, support, and goal orientation of programs such as YouthBuild or the National Guard Youth Challenge. And college-bound youth may also find service attractive: Programs with educational awards, such as AmeriCorps, may dovetail with students’ need to develop their human capital without piling on excessive student-loan debt.

More speculatively, one might imagine a need for more service as a result of changing family structures or for adaptation to climate change; and there is always the specter of a nation “bowling alone,” buffeted by market forces or government regulations. The weakness of market forces is the impersonal nature of private transactions; the weakness of government regulations is their rigid prescriptiveness. Properly fostered, service can avoid both pitfalls.

There are many different reasons why people serve. Many are motivated by nothing more than the desire to help their communities. Yet many more people would serve—or would support others in doing so—if they were aware of the economic value of service. Economic analysis can provide estimates of the comprehensive monetary value of national-service programs. But this economic framework is only partially complete, as not all of the benefits of national service can be quantified in dollars. Much more analysis of how service improves local community infrastructure and social capital, as well as how service can mitigate environmental damage, is needed.

Nevertheless, the fundamental evidence for national service is built on cost-benefit analysis, and it shows that the economic value of national service far exceeds its costs. This conclusion is valid for participants, for taxpayers, and for society at large, and is the case for each formal service program for which reliable evidence is available. Furthermore, we predict these conclusions to hold even—especially—if national service were expanded substantially beyond its current scale.