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Crime and work: What we can learn from the low-wage labor market

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JULY 2000 | EPI Book

Crime and Work

What we can learn from the low-wage labor market
by Jared Bernstein and Ellen Houston

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TABLE OF CONTENTS

Executive Summary

Introduction

I. The economic model of crime

II. The supply side: demographics of the low-wage workforce and those entering and leaving prison

III. The demand side: conditions in the low-wage labor market

IV. Regional variation in the low-wage labor market and crime rates

V. The policy relevance of these findings

VI. Conclusion

Appendix

Executive Summary
Economic theory predicts a cause-and-effect relationship between improvements in the labor market and lower rates of crime. Empirical support for this causal connection means that labor market policies can play a role in reducing crime rates.

The labor market point of entry for offenders and ex-offenders is overwhelmingly the low-wage sector. Unfortunately, even at a time when the overall economy is growing strongly, workers in this labor market face levels of unemployment and underemployment that are many times that of the overall labor market. The wages earned in this sector are low by definition, but they are also so low that a full-time worker cannot bring a family of four above the poverty line, much less raise the income necessary to ensure a family a merely adequate standard of living. Moreover, based on their so-called “human capital,” that is, characteristics such as education levels that are key to determining earnings, the offender/ex-offender population is a significantly disadvantaged subset of an already-disadvantaged workforce.

The strong economy of the late 1990s has helped to ameliorate somewhat the weaknesses in the low-wage labor market. In fact, while conditions there are still not as favorable as in better-paying sectors, gains such as the fall in unemployment rates have been more dramatic than in the overall economy. Crime rates have responded as proposed by economic theory. One recent study found that the decline in unemployment explained about 30% of the fall in crime rates from 1992 to 1997. Furthermore, an examination of unemployment, wages, and crime rates by region shows unemployment and crimes rates falling together, and rising wages and crime rates moving apart.

Labor market conditions are not, of course, the only or even necessarily the prime determinant of crime rates. Over the 1990s, the U.S. sharply increased its expenditures on prisons, incarcerating a growing number of the population and passing “get tough” crime prevention legislation. These interventions have undoubtedly played a large role in lowering crime rates. But the link between crime and labor market opportunity is too often ignored in the current policy debate over crime, which focuses almost solely on longer sentences and prison expansion.

It makes sense, from an economic and social perspective, to expand the debate about ways to reduce crime to also encompass:

  • full employment: even with the current positive trends in employment for the low-wage sector, the unemployment rate for 16-24-year-olds in this group in 1999 was 26%, compared to 4.2% for the overall labor market. The Federal Reserve can play a decisive role here by focusing on its full-employment mandate with at least the same fervor it devotes to interest rates.
  • the minimum wage: at its current value of $5.15, the minimum wage remains 20% below its 1979 level. The vast majority of economic research in this area finds that moderate minimum wage increases, in the range of $1.00 in today’s dollars, have their intended effect of raising wages in the low-wage sector without leading to the unintended consequence of job losses for targeted workers.
  • education and training: education is a key wage determinant, and members of both the offender/ex-offender population and the low-wage sector tend to have lower levels of education than the workforce overall. An important policy goal is to lower the share of high school dropouts among this population and to offer job training, which is associated with better labor market outcomes among the ex-offender population and less recidivism.
  • the expansion of work supports: the Earned Income Tax Credit is an income-tested, well-targeted wage subsidy that can add as much as $3,800 to the income of a low-wage working family with two or more children. Few recipients are aware, however, that the subsidy can be received with each paycheck, rather than in a lump sum. Since the earnings of those entering the workforce after a jail term are likely to be low, these workers could benefit immediately by taking the early payment option. Also, the benefits of the EITC, which are primarily targeted at parents living with their children, need to be higher for single low-wage workers. Finally, other work supports, such as child care, health care, and transportation subsidies, can raise the returns to work and thus increase the opportunity costs of crime relative to legitimate employment.

As long as crime persists, strong crime prevention measures will be necessary. That is why labor markets, especially low-wage labor markets, can make a difference. To lift the economic prospects of all low-wage workers is not only a worthy economic and social goal; it is one that will pay off in the long run by offering potential criminals a legitimate alternative to crime.

INTRODUCTION
Over the 1990s, the economy, and in particular job opportunities, improved markedly, and crime rates fell. Common sense tells us that a strong economy offering plentiful jobs at good wages should take a bite out of crime, and, in fact, research backs that up. The theoretical literature predicts, and empirical studies have found, a cause-and-effect relationship between improvements in the labor market and lower rates of crime. In this report, we take this relationship as a given, and cite both theoretical and, more importantly, empirical work that establishes the link between labor markets and crime.

The existence of this causal connection means that labor market policies can play a role in reducing crime rates. As a first step in developing these policies, it is necessary to identify in some detail the labor market facing those persons whose demographic characteristics are similar to the offender/ex-offender population. Since the labor market point of entry for this group is overwhelmingly the low-wage sector, that sector is the focus of this report.

Even at a time when the overall economy is growing strongly, workers in the low-wage labor market face levels of unemployment and underemployment that are many times that of the overall labor market. The wages earned in this sector are low by definition, but they are also so low that a full-time worker cannot bring a family of four above the poverty line, much less raise the income necessary to ensure a family a merely adequate standard of living. Moreover, based on their so-called “human capital,” that is, characteristics such as education levels that are key determinants of earnings, the offender/ex-offender population is a significantly disadvantaged subset of this already-poor workforce.

Although unemployment and underemployment remain high in the low-wage sector, conditions improved significantly over the
1990s. In fact, gains there, such as the fall in unemployment rates, have been more dramatic than in the overall economy. Crime rates have responded accordingly. In one recent study (Freeman and Rodgers 1999), which controlled for various factors such as the increase in incarceration rates, the decline in unemployment explained about 30% of the fall in crime rates from 1992 to 1997.

Labor market conditions are not, of course, the only or even necessarily the prime determinant of crime rates. Over the 1990s, the U.S. sharply increased its expenditures on prisons and crime prevention, and these interventions have undoubtedly played a large role, perhaps a larger role than labor markets, in lowering crime rates. But the clear link between crime and labor market opportunity is often ignored in the current policy debate over crime, which focuses almost solely on longer sentences and prison expansion. To be most effective, the debate must also encompass full employment, the minimum wage, education and training, and the expansion of work supports such as the Earned Income Tax Credit. To the extent that the low-wage sector of the economy offers former, current, and potential offenders an alternative to crime, it is imperative that policy makers maximize its effectiveness.

This report begins with a discussion of the economist’s model of criminal behavior, that is, the channel through which improved economic opportunities would be expected to lead to lower crime rates. It then examines the characteristics of low-wage workers and compares them to those of the offender/ex-offender population. The third section offers a detailed examination of conditions in the low-wage labor market of the 1990s, focusing on the relevant indicators (unemployment, underemployment, employment rates, and wage trends) for groups with low-wage profiles; these indicators are analyzed both at a point in time and over the past decade, and both nationally and regionally, focusing on states with the highest crime rates. The conclusion discusses the policy implications of these findings.


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