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Can Higher Minimum Wages Keep People From Ending Up In Prison?

A new study finds that when people are released from prison, they have an easier time staying out in places with higher minimum wages.

Can Higher Minimum Wages Keep People From Ending Up In Prison?
[Source Image: eugenesergeev/iStock]

People who’ve been in prison often struggle to stay out of prison. About a third of the 600,000 men and women who exit the corrections system each year re-offend within three years.

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This is bad for individuals and their families as well as society at large. We now spend at least $80 billion a year locking people up. Reducing the recidivism rate just a few percentage points could mean hundreds of millions in savings for state budgets.

So here’s one idea: increase the value of work through higher minimum wages and Earned Income Tax Credits (where taxes are refunded to low-income workers). When ex-cons are paid more, they are less likely to renew a life of criminal activity, a new study shows (though the effect may turn negative if minimum wages go too high).

[Source Image: eugenesergeev/iStock]
Economists Amanda Agan, at Rutgers University, and Mike Makowsky, at Clemson University, studied prison release records for 6 million offenders exiting the prison system between 2000 and 2014. Then they looked at how 200 state and federal minimum wage increases, and 21 state EITC programs, affected re-offending rates. For each 8% increase in minimum wages, they found the rate of re-offending within the first year dropped by 2%–a pretty big reduction given the life-impacts and dollars at stake.

“It’s a big number because going to prison and not going to prison are fundamentally different life paths,” Makowsky tells Fast Company. “You can make the argument that direct labor and wage policies have a substantial effect on a would-be criminal’s decision-making–whether they commit a crime.” (The study covers only drug and property crime, not violent crime.)

[Source Image: eugenesergeev/iStock]
The researchers found higher EITCs reduced recidivism only for women. That’s because such policies cover only parents with custodial rights and men rarely get custody of their children when they come out of prison. But extending the EITC to men without children–as many policymakers, left and right, want to do–might extend the re-offending-reducing benefits. “I think our paper presents a strong argument for untying the EITC from whether you have children,” Makowsky says.

Minimum wages are controversial. Economists argue constantly about whether forcing companies to pay higher amounts is a good idea. The latest fight centers on Seattle where dueling studies have found, on the one hand, little effect on employment levels, and, on the other, fairly serious negative effects. The second study, from the University of Washington, revealed that when employers began paying new minimum wages of up to $13 an hour, they tended to cut hours, reducing overall pay.

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But these studies–both positive and negative–ignore secondary effects, like the effect on prison re-offending, Makowsky says. Looking at the wider picture might help make the case for minimum wage and EITC increases, though he thinks the impact may turn negative above certain levels. If states increase minimum wages too much, there could be less employment, hurting people with criminal records perhaps more than any other group. Given that people with criminal records tend to have less education and work experience than other workers, they’re “on the margin of employment and may be particularly sensitive to changes in low-wage labor market policies,” the paper says.

[Source Image: eugenesergeev/iStock]

The analysis doesn’t cover the latest increases in Seattle, California and New York–all of which plan to push minimums to $15 an hour. Makowsky suggests states raise minimum wages incrementally, so they can study the effects, positive and negative. And his point is backed by another recent study, this time from Christine Braun, a PhD candidate from the University of California, Santa Barbara.

Braun looked at county-level crime data and state minimum wage changes from 1995 to 2014, focusing on 16- to 19-year-olds. She found that crime rates are minimized when minimum wages are at 91% of the median for that age group. But increasing minimum wages above that level can send crime rates up by as much 23%, she says (assuming that unemployment leads people to choose crime).

The effect of paying minimums at $15 depends strongly on whether wages are rising naturally without the effect of minimum wages. “If wages rise naturally for this group of individuals, say through productivity increases, then a $15 minimum wage may not cause much employment loss, and therefore not increase the crime rate,” Braun writes in an email.

It should be said that data covering 16- to 19-year-olds is not the same as data covering the population at large. Do younger people make decisions about whether to take jobs or commit crimes the same way as a 35-year-old father of four? We’re not sure. Also, a crime level increase of 23% from paying a $15 wage seems like a suspiciously large result.

Having said that, from the research, it seems policy-makers have a potentially powerful tool to reduce re-offending and crime rates, even if they need to be careful. Raise minimums too much and too quickly, and there may be unintended consequences, particularly for vulnerable populations trying to re-enter the workforce.

About the author

Ben Schiller is a New York staff writer for Fast Company. Previously, he edited a European management magazine and was a reporter in San Francisco, Prague, and Brussels.

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