Increasing Minimum Wages Does More to Reduce Recidivism Than Prisoner Reentry Programs

Want another reason to increase minimum wages? How about reducing crime?

A new study by Amanda Y. Agan of Rutgers and Michael D. Makowsky of Clemson examines the relationship between minimum wage increases and recidivism rates among former prisoners, using data from 2000 to 2014 from 42 states. This topic has important social ramifications, given high rates of incarceration in the US combined with the difficulties former prisoners have in re-establishing themselves economically when released. The study points out that over 600,000 people are freed from prisons every year, yet almost 1/3 return within three years of being released. We’ve embedded the study at the end of this post.

Debates over minimum wage increases focus on whether the wage rise is actually a net benefit to workers overall. Opponents contend that the wage effect (the greater pay) can be fully offset by employers cutting back on their use of workers to prevent their labor costs from rising. The way this translates in econ-speak is that the wage effect (more pay) can be offset by the employment effect (more difficulty in getting a job).

Given that ex-cons are likely to find it hard to get back into the workforce to begin with, many who do find work will wind up in minimum or near-minimum wage jobs. And more so than other workers, they may regard what the authors call “criminal market activity” as an alternative to wage labor.

Their main findings:

Exploiting the various state and year variation in minimum wages over our time period, we find that an 8% increase in the minimum wage (the average increase over our time period) corresponds to a 2% decrease in the probability an individual returns to prison within one year over the average, with no discernible difference in effect for men or women. That is, the increased incentive to substitute legal employment for criminal market activity, on net, appears to be greater than any employment effects of reduced labor demand resultant of minimum wage market distortions. While our results are agnostic regarding the debates over the magnitudes of the employment effects of minimum wages, they do serve as evidence that wage effects, on balance, dominate employment effects in the decisions made by would- be recidivists. This suggests that the wages of criminal market activity are greater than those that can be expected by ex-offenders in the legal market for low-skilled labor.

So crime does pay in a McJobs economy. They also found that increasing minimum wages did more to reduce recidivism than a raft of programs designed to do just that:

Nearly half of the $125 million budget for the Second Chance Act Prisoner Reentry Initiative was ear- marked for released prisoner employment programs (GAO 2011). Summarizing the “flurry of community-based employment interventions, generally involving some combination of job readiness, job training, and job placement services” implemented between 1971 and 1994. Visher et al. 2005 identify eight programs that were designed with an eye towards testable outcomes. While these ex-offender jobs programs likely have a range of genuine benefit to their participants, none produced statistically identifiable reductions in recidivism rates. Further, the intent of these and similar policies not withstanding, the balance of U.S. la- bor policy is very much against those with criminal records.3 Given the limited efficacy of past policies, and the political obstacles to passing legislation targeted to support individuals with criminal records, understanding the impact of broader labor policies is critical to efforts towards reintegrating released prisoners back into the workforce and breaking the cycle of crime and imprisonment.

Moreover, the fall in crime rates occurred in categories that made money:

These reductions in re-convictions are observed for the potentially revenue generating crime categories of property and drug crimes; prison reentry for violent crimes are unchanged, supporting our framing that minimum wages affect crime that serves as a source of income.

Agan and Makowsky also looked at whether access to state Earned Income Tax Credits would reduce recidivism rates. Their conclusion:

The availability of state EITCs also reduces recidivism, but only for women. Given that state EITCs are predominantly available to custodial parents of minor children, this asymmetry is not surprising….Using state and year variation in the availability of state EITCs, we find that the avail- ability of state top-ups to the federal EITC corresponds to a 1.6 percentage point (7.1%) lower rate of recidivism amongst women, while having no significant effect on men. Focusing on the differing sizes of the state top-up as a percent of the federal EITC, we find that a one standard deviation increase in the state EITC corresponds to a 6% (0.09pp) reduction in the expected recidivism rate for women.

We’ve embedded the paper below. The authors ran quite a few robustness tests and also considered questions like “Was the minimum wage increase due to an improving economy and could that explain the fall in recidivism?”

It is over my pay grade, but for those with access to the data, it would be useful to do a back-of-the-envelope calculation on how much it might be worth in societal terms to have achieved this reduction in recidivism. Among other things, you have the value of freeing up police to do other things, and savings in court and prison costs, and of course, eliminating the direct costs of crimes. And since 53% of the people who go to prison have children, there are other hard and soft benefits to lowering recidivism rates.

The Minimum Wage, EITC, and Criminal Recidivism
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  1. The Rev Kev

    If increasing minimum wages reduces recidivism amongst ex-cons, then wouldn’t it be logical to assume that a basic living wage would prevent people from falling into criminal ways in the first place? Would probably boost the economy too but that is neither here nor there for the purposes of this article.

  2. cnchal

    Horrors. Just think of the financial damage that would do the prison “industry” and their inwestors, never mind the police or “justice” workers that could be laid off.

    Where would politicians get their funding from then?

    1. Robert McGregor

      Good point. A system where there are financial incentives to hurt people (private prisons, courts, police) is an evil system.

      1. cnchal

        Lots of evil systems out there. The military mind profits from not just hurting, but killing as well.


    My back-of-envelope calculations:

    According to the Vera Institute, average annual cost to house an inmate is $31,286. Low-end estimate for the costs for a marijuana-related offense is $750, so use that as the arrest cost value as the study noted drug arrests make up the bulk of the recidivism decrease. According to the BJS, average time served for a drug offense is 16 months, and we’ll be generous and round that down to a year. So $32,036 per incident of recidivism.

    The study found a 2% drop in recidivism per 8% increase in the minimum wage. If 1/3 of the 600,000 inmates released a year re-enter the prison system within three years, that comes out to 200,000. 2% of 200,000 is 4,000. 4,000 times $32,036 is $128.14 million, which is your savings in tax cost alone. An 8% increase in the minimum wage, currently sitting at $7.25, is a real increase of only 58 cents an hour, so the inflationary effect would be non-existent and wouldn’t offset that tax savings.

    1. rd

      Increased minimum wage is a corporate cost. Imprisonment is corporate revenue.

      You have the model reversed.

  4. Denis Drew

    Something like half of Chicago gang age, minority males are in street gangs (100,000).

    Berkeley professor Martin Sanchez-Jankowski found, upon spending nine years on the street in five NYC and LA poverty stricken neighborhoods, that ghetto schools fail because students (and teachers!) don’t see anything remunerative enough waiting for them in the labor market to make it worth the extra effort. Chicago teachers and their union seem to have cracked this).
    Cracks in the Pavement: Social Change and Resilience in Poor Neighborhoods – 2008

    Fifty percent ain’t one-percenters. Flatly stated, American born workers just wont scramble, full-out all day — the way new Americans bustle through their days at my Micky D’s across the street — for $10/hr. Eventually all such jobs (see an American born cabbie lately?) get “in-sourced” to relatively desperate immigrants (not kicking immigrants here — I want them to benefit from higher pay too).
    * * * * * *

    Super easy way back from morbidity inducing wage levels is restoring healthy a level labor union density (6% unions outside gov equates to 20/10 bp)? When Democrats take over Congress, we must institute mandatory union certification and re-certification elections at every work place (stealing a page from the Republican’s anti-union playbook — see Wisconsin gov workers). I would add the wrinkle of making the cycle one, three or five years — plurality rules — take a lot of potential rancor out of first time votes in some workplaces.

    Why Not Hold Union Representation Elections on a Regular Schedule?
    November 1st, 2017 – Andrew Strom

    1. Denis Drew

      Simply put, if fast food can pay $15/hr at 33% (!) labor costs, then, other retail should be able pay $20/hr at 10-15% labor costs, and, Walmart (God bless it) may be able to pay $25/hr at 7% labor costs. If this means shifting 10% of overall income to the bottom 40%, that means scratching 14% of their income from the “middle” 59% (who get roughly 70% of overall income) — in higher prices. Which may mean we have been paying the 40% too little for too along. But if the 40% get labor union organized (where this little speech is going) we may find ourselves willing to up if we want them to show up at work.

      I have always been willing to tell any gang banger (not that I ever run into any) that side-ways guns and gang signs and all that would look pretty funny in, say, Germany where they pay people to work. And, that if Walmart were paying $25/hr we wouldn’t be hearing about any of this here.

      As it is, the “middle” 59% can replenish their pockets at the expense of top 1% income whose share has ballooned from 10% to 22.5% over recent (de-unionizing) decades. Just reintroduce confiscatory taxation of the kind existing in the Eisenhower era. Say, 90% over $2 million income — and this time we really mean it — very top incomes (CEOs, news anchors, er, quarterbacks) now 20X what they were since per capita income only doubled. I predict any social inertia (it’s only human nature) on the part of the 59% to jack upper taxes up will be overcome by the friendly persuasion on the part of the 40% — who want to jack up the price of that burger just a bit more. :-)

    2. Denis Drew

      Eureka moment!

      After reading Rachel Cohen’s article in the intercept describing how the whole right wing exploded to fend off any pro-union legislation in Obama times …

      ” … The business community hated EFCA, correctly recognizing that it would have shifted power relations between workers and employers. “This will be Armageddon,” the vice president for labor policy at the Chamber of Commerce complained.” …

      … while the public never really caught that anything sizable was going on …

      ” … To do something that will significantly shift power relations in the U.S. cannot be done quietly as a negotiated deal, it cannot happen without a loud clamor for it. It needs to be big enough and presented in ways people can understand.” …

      … It occurred to me (with my usual eighth-grade math approach) that with only 6% union members now in non-gov work, any union issue inherently appear like a marginal issue to most folks — concerning only a “small circle of friends” — it’s the natural workings of human nature.

      OTW, proposing mandatory union cert/re-cert elections (one, three or five years — plurality rules) at every non-gov workplace concerns the lives of every worker in the country and powerfully — the only (“Madison Avenue”) way to go. :-O

  5. Sound of the Suburbs

    Disposable income = wages – (taxes + the cost of living)

    The minimum wage is set when disposable income equals zero.

    The minimum wage = taxes + the cost of living

    The cost of living = housing costs + healthcare costs + student loan costs + food + other costs of living

    The US sets a high minimum wage through a high cost of living.

    (Michael Hudson in brief)

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