The Minimum Wage, EITC, and Criminal Recidivism

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…

Comments

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.

'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.'

'Strangely enough I have never seen a man beat a woman in public.'

And strangely enough, I have seen a woman assault a man, with several minutes worth of dedicated effort and multiple landed blows outside of an Aldi a year or two ago. I got between them, still wearing my motorcycle jacket and holding my helmet, originally thinking that the problem was a man beating on a woman. Instead, the female friend trying to hold back the screaming and flailing woman was shouting about how the man was innocent, that her friend was out of control. Which soon apparent as she kept hurling insults at the decade or two younger man, blocking several of her blows with my body (she was truly doing her best to inflict as much harm as possible). The young man, not so surprisingly, had no interest in losing face, so he did not help the situation by ignoring her to the best of his ability without being driven. Possibly because the screaming woman was between him and his apparent wife with a maybe 6 month old baby, and it was clear that some history was involved in the confrontation, especially in light of her variety of personalized insults (many of them being distinctive of native Germans from this region).

Nothing about this minor altercation had anything to with stuff, either purchased or free. Whether that fits your definition of a crime of passion is up to you - it fits mine, to the extent that if that woman had been able to kill that man, she would probably would have, and her motivation seemed to be based on an extreme of passion concerning her desires.

*'Nor have I seen one strangle, rape or murder a woman in public.'

One would certainly hope not. Because if you could seen it, you would have had an obligation to intervene. In the example above, my initial worry while getting between them was that if the man had a knife (still incorrectly assuming that it was the man assaulting the woman), my padded motorcycle jacket would not be very useful, though still better than nothing. Also aware that the helmet was still a more useful weapon (and potential defense) than my bare hand/fist or motorcycle boot covered feet.

'For some strange reason these crimes seem to only take place in private. At least to a first order approximation.'

No need to bore anyone with examples from the U.S. from the past when talking about physical assault where at least one party seems to have completely lost control of their emotions and wanting to do, and also doing, violence. And no reason to talk about the ones where alcohol clearly played a role either, one assumes - it certainly played no role in that Aldi incident in broad daylight.

Not everything involving people is about physical 'stuff' after all. Or even meant as a parable - in this case, the assumption that it was the man assaulting the woman was completely incorrect, being an example of an incorrectly generalized mental model compared to what was actually happening.

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.

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.

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

It's satire.

It's literally impossible to tell.

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.

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

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

I think Tyler's trolling us, seeing if we'll see a "signal" that isn't there.

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

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

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

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.

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

Non-sequitur much?

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.

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.

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.

"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?

"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.

I wouldn't say that.

I wouldn't say anything.

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.

"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?

"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?

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.

I know I'm late to the party, but there is a new nice thought experiment explaining how this can happen:

Suppose the amount of money you need to survive(or you THINK you need, etc.) is N.
The money you get from your non-minimum wage job is M.
If M>N, everything's fine.
If N>M, it's not:
You need some way to get the difference, or you just don't bother and do something else entirely. Especially if you can earn more as a criminal, why even bother being a part-time criminal? You might as well be full-time criminal. In any case, it should be clear how this could lead to an increased likelihood of someone becoming a criminal.
Now suppose we set the minimum wage to P>N.
Even if you put a significant amount of people who before earned M out of job, the remaining ones are strongly disincentived to do crime. After all, they can live just fine already, and why risk going to jail for a little more money? You suddenly need a lot more criminal energy to really do that. The ones who lost their job however were already incentived to do crime before, so their increase in criminal activity might not even be that big.

I'm not saying that this is necessarily what is happening, but this is imo a reasonable mechanic how a decrease in crime might be caused by an increased minimum wage, even supposing a significant loss in employment.

Additionally, I don't think the employment loss is really as proven as you think it is. The study I see most commonly is the one from denmark( see http://marginalrevolution.com/marginalrevolution/2017/06/minimum-wage-evidence-danish-discontinuity.html), where minimum wage is applied when people turn 18.
Proponents claim this is perfect because it directly allows you to compare minimum wage to non-minimum wage at the margins. Critics claim this is the worst possible way because the entire point of minimum wage is that it applies to everyone in a country. Nobody in favor of minimum wage ever claimed that it's a good idea to have it in direct competition with non-minimum wage, so it's a false equivalence. Furthermore, it misses effects that could improve the economy upon the introduction of a minimum wage, and there are a lot of other ways why an 18 year old might quite his job.
At least to me, the critics are more persuading because this entire way of applying minimum wage seems ridiculous.
There are also studies that looked at countries which introduced minimum wage. These are more muddy in the conclusions, which can be both argued to be because the results are biased by other factors or because the loss simply isn't that big or that even a higher income in the lower bracket can stimulate the economy(since the lower income bracket is known to be more likely to put the money into consumption).
Again, a relatively low loss seems to me more plausible because a significant effect to the degree shown in denmark is difficult to consistently muddy. Over multiple studies and countries, it should begin to show more.

So, in conclusion, even if I would say that a loss in employment should happen given how markets works, the evidence seems to point that it's not as big as one might suspect.

"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?

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?

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 ?

'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.

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.

I think "but" means "only" here?

Apparently such observations are to remain shrouded in mystery.

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

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.

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).

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.

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/

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.

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

Why “But?"

Don't bring it up.

Tyler fans are much like Trump fans these days.

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

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

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

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.

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.

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."

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

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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