Abstract:

For recently released prisoners, the minimum wage and the availability of state Earned Income Tax Credits (EITCs) can influence both their ability to find employment and their potential legal wages relative to illegal sources of income, in turn affecting the probability they return to prison. Using administrative prison release records from nearly six million offenders released between 2000 and 2014, we use a difference-in-differences strategy to identify the effect of over two hundred state and federal minimum wage increases, as well as 21 state EITC programs, on recidivism. We find that the average minimum wage increase of 8% reduces the probability that men and women return to prison within 1 year by 2%. This implies that on average the wage effect, drawing at least some ex-offenders into the legal labor market, dominates any reduced employment in this population due to the minimum wage. 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. 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. Framed within a simple model where earnings from criminal endeavors serve as a reservation wage for ex-offenders, our results suggest that the wages of crime are on average higher than comparable opportunities for low-skilled labor in the legal labor market.

(H/t to Tyler Cowen for sharing on his blog Marginal Revolution.)

It seems that higher minimum wages (and the EITC) leads to decreased recidivism, which dominate the effects the higher labor price floor has on employment levels. Meaning, higher minimum wages lead to higher levels of employment despite the higher price floor, at least at levels not far from our equilibria. Isn’t that something? I guess I can’t fairly argue that increasing the minimum wage harms low-skilled labor.

At least not in the American context. It still holds theoretically that higher minimum wages represent a price floor, etc.

It might be the case in the United States that there are a lot of low hanging fruit to capture in regards to higher employment levels due to decreased recidivism. We have a higher incarceration rate per capita than authoritarian China and our nominal minimum wage has barely doubled in the 37 years since 1981 when it was $3.35 an hour—a decrease in real purchasing power. In December 2017 dollars that’s $9.49/hour, according to the Bureau of Labor Statistics’ online inflation adjustment calculator. I can imagine at the margins, among the 6.1 million convicted felons in the US (letting alone petty misdemeanor convictions), not an insignificant amount might turn from illegal activities to minimum wage jobs. There is also the potential for savings associated with lower recidivism, i.e. reduced private property damage or theft, lower prison and confinement costs, policing, criminal prosecution, etc.