The Minimum Wage, EITC, and Criminal Recidivism

by on January 7, 2018 at 12:10 am in Data Source, Economics, Law | Permalink

From Amanda Y. Agan and Michael D. Makowsky, here is an new and important approach:

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.

But two days ago I ran into Amanda and family at Penang restaurant in Philadelphia…

1 GoneWithTheWind January 7, 2018 at 12:29 am

Poppycock! If free stuff prevented people from committing crimes we wouldn’t have any crime in America the land of free stuff. This is a fake study designed to push a welfare state.

Drugs cause most crime and are the root cause of recidivism. Giving these people money, especially money that they don;t have to spend 8 plus hours a day to earn is stupid and criminal.

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2 clockwork_prior January 7, 2018 at 5:11 am

‘If free stuff prevented people from committing crimes we wouldn’t have any crime in America the land of free stuff.’

One can reasonably assume that the whole category called ‘crimes of passion’ has very little to do with stuff, but instead is rooted in basic human drives and behavior that have nothing to with the cost of ‘stuff.’

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3 So Much For Subtlety January 7, 2018 at 6:24 am

Especially as the important question is whether they have properly studied the context in which any increase in the minimum wage takes place. After all, we know the sort of people who increase the minimum wage – Democrats. They also love felons with a passion. So they try to keep as many of them out of prison as possible. As in, for instance, Chicago where it is next to impossible to go to jail for minor things like stealing cars or having an illegal firearm.

So is the decrease in criminals going to prison caused by criminals no longer being criminals or by Democrats fighting for their right to rob and rape? I would think the latter.

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4 john January 8, 2018 at 9:09 am

Skeptical of the results as causality but there is a certain common sense to the conclusion. That said I find the statement about how democrats (no one myself) just like keeping criminals out prison and just how bad that might be socially. Clearly violent crimes are a separate class than what I’m thinking about here. But follow me. Theft, even of major household items will be 1) generally in the 10s of thousands and 2) are generally insured. If the state were to pay compensation for theft rather than incarcerating the thief do we come out with a lower tax bill? Add the idea that the thief would then be expected to repay in someway be it some arranges minimum wage job or even some unpaid community service work (cleaning up the streets/parks….) does that make it still cheaper than incarceration?

And yes, there are a lot of “ciminals” that probably are not really committing any real crime other than some busy-body/moral-authroitarian wants to make some harmless activity a crime.

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5 Qwerty January 7, 2018 at 6:32 am

“Who cares about facts and studies? I have my guts and prejudices. The beatings must continue until the morale improves”.

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6 Hwite January 7, 2018 at 9:50 am

It’s satire.

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7 AlanW January 7, 2018 at 10:48 am

It’s literally impossible to tell.

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8 clockwork_prior January 7, 2018 at 11:07 am

If you get to read the full commenting text (as only a select few do these days), it is not all that hard to tell that what is posted is not satire – at least intentionally.

9 Jim January 7, 2018 at 1:02 am

Interesting. Not sure I get the restaurant in Philly conclusion though …

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10 clockwork_prior January 7, 2018 at 5:08 am

Don’t worry, some people will, from a number of different perspectives. I

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11 Hwite January 7, 2018 at 9:54 am

I think Tyler’s trolling us, seeing if we’ll see a “signal” that isn’t there.

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12 Hazel Meade January 7, 2018 at 5:26 pm

Maybe he’s trying to imply there is some hypocrisy in eating at a cheap Malaysian restaurant staffed by minimum wage workers.

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13 john January 8, 2018 at 9:19 am

or suggesting that if all did that more people could stay out of jail?

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14 Philip Crawford January 8, 2018 at 10:47 am

Yes, however I think TC is implying those restaurant workers are not earning minimum wage. Many studies indicate they aren’t.

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15 extramsg January 7, 2018 at 1:11 am

There’s going to be so much fascinating economics work in the next decade on the minimum wage with all these states, such as my own Oregon, being test cases for rapid growth in the minimum wage. As a business owner who employs low-wage workers, I don’t expect much effect right now. We’ve seen hints at some effects in various studies, but none have been enormous.

What I worry about is when we have a recession and how the higher minimum wage might exacerbate layoffs and reductions in hours and slow the recovery of low-wage jobs. If it does, following this result, you might see lingering higher-than-expected recidivism rates.

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16 Mulp January 7, 2018 at 11:07 am

As a businessman, when business is slow, you want your customers to have less money to spend, because lower demand increases your profits?

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17 extramsg January 8, 2018 at 4:30 am

Non-sequitur much?

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18 Philip Crawford January 8, 2018 at 10:48 am

The thought of Mulp running a business is humorous. Mulp, many businesses serve customers that are of a different demographic than the people that work there.

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19 spencer January 8, 2018 at 3:21 pm

Historically, national minimum wage increases tend to be enacted in a late cycle environment and are almost always shortly followed by a recession.
It has not seemed to have much impact.

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20 shrikanthk January 7, 2018 at 2:30 am

Not well read on empirical studies.

But the association of minimum wage hikes with higher unemployment has been validated beyond doubt empirically correct? Or is it still a bone of contention among economists?

If that’s universally accepted, then I just don’t understand how greater unemployment can lead to lower crime rates. Even if some study points to that, one has to treat it as spurious.

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21 andy January 7, 2018 at 3:35 am

“If that’s universally accepted, then I just don’t understand how greater unemployment can lead to lower crime rates. Even if some study points to that, one has to treat it as spurious.”

It can; but the connection seems to be far-fetched. Some people get unemployed, some people get higher wage. If a bigger proportion of these people is in the ‘higher-wage’ group and the wage difference is what tips them from illegal activity (this is what seems to me quite weak), then this could happen. Also, the people who will get unemployed had probably the lowest potential wage to begin with, so they would continue the illegal activity no matter what and have no effect on the statistics.

But really… it looks like paying these people some welfare money should reduce the crime rate as well. Would it make sense to do it?

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22 Hwite January 7, 2018 at 9:50 am

“But the association of minimum wage hikes with higher unemployment has been validated beyond doubt empirically correct?”

No, if anything the evidence points the other way.

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23 Anonymous January 7, 2018 at 10:57 am

I wouldn’t say that.

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24 Johnny Tight-Lips January 7, 2018 at 11:14 am

I wouldn’t say anything.

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25 Philip Crawford January 8, 2018 at 10:50 am

I’d say it’s still up for debate and depends on how fast, how far, and current employment rate. Saying nothing is the best bet.

26 Mulp January 7, 2018 at 11:33 am

“But the association of minimum wage hikes with higher unemployment has been validated beyond doubt empirically correct? Or is it still a bone of contention among economists?”

Right. The evidence is total clear that the way businesses grow is by serving poorer and poorer customers, because profit is maximized when sales volumes are cut and cut to account for lower and lower customer incomes.

If cutting labor costs are the key to higher growth and increased worker incomes, the Red States would be booming economically with record numbers of millionaires being created, not the Blue States of coastal elites, high minimum wages, stronger labor laws, high taxes, etc.

Why don’t economists write reports about how high growth has been where wages have fallen in real terms steadily for three to four decades? Wages and benefits in West Virginia have fallen in real terms for decades, so why isn’t the economy booming?

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27 andy January 7, 2018 at 4:33 pm

“Right. The evidence is total clear that the way businesses grow is by serving poorer and poorer customers, because profit is maximized when sales volumes are cut and cut to account for lower and lower customer incomes.”

Are we to assume that slightly raising wages of some restaurant workers, cleaners, drivers etc. will make economy grow so much more?

“Wages and benefits in West Virginia have fallen in real terms for decades, so why isn’t the economy booming?”

Maybe the causality is reversed? Like non-booming economy causing decline in wages?

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28 Hazel Meade January 8, 2018 at 9:15 am

Why don’t economists write reports about how high growth has been where wages have fallen in real terms steadily for three to four decades? Wages and benefits in West Virginia have fallen in real terms for decades, so why isn’t the economy booming?

You have cause and effect reversed.

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29 Pat January 7, 2018 at 4:51 am

“drawing at least some ex-offenders into the legal labor market”. How does increasing the wage below which it is illegal to employ someone draw anyone into employment?

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30 Mulp January 7, 2018 at 11:40 am

How does paying a wage lower than the cost of living and the cost to get to the low wage job prevent criminal activity?

Ie, no money for gas after paying other bills to get to work, so

Option 1: don’t go to work
Option 2: steal the gas

Transportation is a huge obstacle to work for low incomes workers. It is so important, many other bills are not paid, like rent, utilities, but are homeless people living in their cars highly desirable employees?

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31 Pat January 7, 2018 at 5:40 pm

A person who could have been profitably employed at their reservation wage after the minimum wage increase could have been also before the increase. How has the person’s labour supply decision been affected ?

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32 clockwork_prior January 7, 2018 at 5:06 am

‘But two days ago I ran into Amanda and family at Penang restaurant in Philadelphia…’

Not drinking in social settings and having meals with a family definitely makes it easier to follow Pence’s etiquette concerning events where women and alcohol are present, though not precisely meeting his rigorous standards. Standards that might just become more fashionable at White House social events in the future, though probably not at Mar-A-Largo.

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33 rayward January 7, 2018 at 7:34 am

I didn’t get the “but”. Is returning to Philadelphia a type of recidivism? Professor Agan has studied and published papers on registries of criminal records and registries of sex offender records, in both cases finding that they don’t serve a useful purpose (that’s my non-technical observation). I suppose the registries are a form of Scarlet Letter. I recently saw an ad on television for a new reality tv show called Love After Lockup about the disappointment (mostly) women suffer for having become involved with a prisoner and then continuing the relationship after lockup. Somehow the (sex) appeal of an inmate doesn’t extend beyond the lockup. I suspect Professor Agan has suffered a similar fate for the papers she has published.

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34 Anonymous January 7, 2018 at 10:59 am

I think “but” means “only” here?

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35 clockwork_prior January 7, 2018 at 11:22 am

Apparently such observations are to remain shrouded in mystery.

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36 bill January 7, 2018 at 7:34 am

I would have expected a higher minimum wage to result in employers choosing non-felons.

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37 Procrustes January 7, 2018 at 8:42 am

Me too. This study suggests some surprising results that do not sit well with my priors.

That said, what would be the net impact (increased employment of felons offset by wages higher than marginal product) in the face of the proportionately higher increases in minimum wages that are being pushed now.

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38 Art Deco January 7, 2018 at 7:40 am

our results suggest that the wages of crime are on average higher than comparable opportunities for low-skilled labor in the legal labor market.

I can imagine that for prostitutes, petty drug dealers, chop shop operators, fences, and gangsters. I doubt more than a contextually tiny population of people can make a living from burglary and street robbery. There was a time 35 years ago when the NYPD concluded that about 70% of the robberies in the city were committed by fewer than 4,000 individuals (out of a slum population in excess of 1.5 million).

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39 Hwite January 7, 2018 at 9:42 am

A lot of criminals get by, in addition to crime which pays poorly if at all, through parasiting off of friends, family, and girlfriends. Maybe they’re more able to do this when the minimum wage is higher.

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40 Denis Drew January 7, 2018 at 11:11 am

Something like half of Chicago, gang age males are in street gangs.
https://www.cbsnews.com/news/gang-wars-at-the-root-of-chicagos-high-murder-rate/

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 Paperback – 2008
https://www.amazon.com/Cracks-Pavement-Social-Resilience-Neighborhoods/dp/0520256751

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

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. 🙂
* * * * * *
Super easy way back? When Democrats take over Congress, we have to 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
https://onlabor.org/why-not-hold-union-representation-elections-on-a-regular-schedule/

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41 chuck martel January 7, 2018 at 11:33 am

see Wisconsin gov workers

Public employees should be required to individually bid for their jobs annually, low bidder getting the position. What would be wrong with somebody working at the Department of Agriculture for $12/hr and no benefits? Public employees at any level, teachers for instance, shouldn’t have the right to vote in any election, either.

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42 Hazel Meade January 7, 2018 at 11:34 am

If we legalized criminal enterprises such as drug dealing, would these results still hold?

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43 David R Henderson January 7, 2018 at 12:14 pm

Why “But?”

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44 clockwork_prior January 7, 2018 at 12:50 pm

Don’t bring it up.

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45 Transnational Pants Machine January 7, 2018 at 2:53 pm

Tyler fans are much like Trump fans these days.

“He said one thing, but I assure you, HE MEANT A COMPLETELY DIFFERENT THING!”

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46 jorod January 7, 2018 at 10:37 pm

Just get rid of the Federal anti-poverty programs and stop subsidizing poverty.

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47 JonFraz January 9, 2018 at 2:02 pm

Want the crime rate to soar? Leave people to starve.

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48 TallDave January 8, 2018 at 12:54 pm

Unsurprising. EITCs have always made a lot of sense… they don’t raise prices or decrease employment, but still increase the low wages available to the marginally recidivist.

And EITCs are a big reason why America has had the most progressive income structure in the world for some time now — it pushes a lot of the people below median income into negative taxation.

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49 spencer January 8, 2018 at 3:28 pm

Can you provide the source of your claim that America has the most progressive income structure in the world. I sure contradicts data from the OECD.

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50 TallDave January 9, 2018 at 2:54 pm

income tax* structure

https://taxfoundation.org/news-obama-oecd-says-united-states-has-most-progressive-tax-system/

ut a new study on inequality by researchers at the Organization for Economic Cooperation and Development (OECD) in Paris reveals that when it comes to household taxes (income taxes and employee social security contributions) the U.S. “has the most progressive tax system and collects the largest share of taxes from the richest 10% of the population.”

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51 TallDave January 9, 2018 at 2:58 pm

I meant to say income tax, of course, but in terms of the income structure, Americans in poverty have higher incomes than those in poverty in almost any other country in the OECD, and receive the most in government aid on a per recipient basis among all countries except Norway.

http://www.nationalreview.com/article/424009/poverty-us-we-spend-much-more-person-social-welfare-europe-does-robert-rector

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52 danexmachina January 11, 2018 at 11:08 am

I try to think of the minimum wage as the amount a person’s time would be worth to them if they stayed home, grew their own food and didn’t have to buy a car, gas, insurance and competitive clothes just to show up and do what someone tells them.
For quantitative reference, a new car in 1972 was about $2000, and minimum wage was $1.50 or something. Today’s decent new car is 20k: A tenfold increase. That should put us around $15.
Where’s that wealth gone?
For one, few people have access to the alternative (land) because of cheap food (minimized wages for farmers: who are being replaced by machines and corporations).
When all of the wealth is at the top, it isn’t logical to maintain that unstable economic scheme. The trick is not to inflate and tax the unstable floating wealth, but to prevent the wealth from leaving the bottom where it is most useful.
It isn’t really sociology, but basic ecology: take care of the soil and the soil will take care of you.
The real economy isn’t the stock market: it’s the lives of people and their children, but we can’t tell that by our media or schools.

“No economist will tell you we have too many economists”- Wendell Berry

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