Incarceration as a labor market outcome
I wasn’t all that surprised that Bryan Caplan
didn’t like my interpretation of our bet on EU and US unemployment rates, which was that the combined rates of unemployment and incarceration in the US would exceed those in the EU over the next ten years. I was, however, surprised by the vehemence with which libertarian-inclined* commenters here and at Crooked Timber objected to this interpretation.
A string of them echoed Caplan’s argument that
From a labor market perspective, though, Quiggin’s incarceration adjustment would only make sense if you thought that most or all of the people in jail would be unemployed if they were released.
Caplan has missed my main point. I’m not suggesting that incarceration is disguised unemployment (though obviously it reduces measured unemployment). Rather, I’m saying that, like unemployment, incarceration should be regarded as a (bad) labor market outcome. If you want to evaluate the performance of the labor market, you need to look at both.
There’s nothing radical or leftist about this viewpoint: it’s one that is at least implicit in all economic models of the labor market of which I’m aware, and is most particularly explicit in that of the Chicago School*. Most of the crimes for which people are imprisoned in the US can be understood as reflecting economic choices which in turn are determined primarily by the labor market in which those choices are made. This is obviously true of property crime and drug dealing, and it’s true, directly or indirectly, of lots of violent crime as well. As Gary Becker put it (quoting from memory here) “a burglar is a burglar for the same reasons as I am a professor”. (You don’t have to buy Becker’s assumption that criminality is a “rational” choice, to agree that it is a choice and that choices reflect the attractiveness of the available options).
There’s plenty of statistical evidence from scholars like Glenn Loury to show that criminals, and particularly those who end up incarcerated, are drawn disproportionately from groups with bad labor market prospects: poor, disproportionately black, facing low wages and high risk of unemployment. But well-done case studies are often more convincing, so I’ll point to the Venkatesh study of Chicago drug dealers reported in Steve Levitt’s Freakonomics. Venkatesh found that most street dealers were making less than minimum wages, and were motivated by the very low probability of surviving to attain the only high-paying job realistically available to them, that of the local kingpin. Even more striking was the observation that, when gang members learned Venkatesh was a university professor, they approached him in the hope that he would be able to wangle them jobs as janitors – otherwise an ambitious, and probably unattainable aspiration.
The Chicago theory on which the case for flexible labor markets is based predicts that the lower is the return associated with the “outside options” of employment or reliance on social insurance, the higher will be the incentive to engage in crime as a way of making a living. The only way to offset this is to make crime still less attractive, or less feasible, through high rates of imprisonment and long prison terms. That is, other things equal, low wages and weak or non-existent unemployment benefit systems can be expected to lead to higher crime rates, higher rates of imprisonment of both. So, any consistent advocate of the Chicago theory should treat both incarceration rates and unemployment rates as labor market outcomes.
Unfortunately, as has been shown by the current debate, there’s not a lot of willingness to explore the logical implications of the Chicago line to a position that might undermine its policy conclusions. Loury has noted the destructive effects of imprisonment (in Chicago terms, it causes rapid depreciation of human capital). There’s no good reason a priori to suppose that a labor market in which wages are low and unemployed are treated badly will do better, when both unemployment and incarceration are taken into account than one with higher minimum wages and more generous social welfare.
So, I would argue, my interpretation of my bet with Bryan Caplan is the more relevant one in terms of policy evaluation. The proportion of bad labor market outcomes is better measured by the sum of unemployment** and incarceration (expressed as a proportion of the labour force) than by unemployment alone.
* Or maybe shmibertarian: as we saw during the Bush era lots of alleged libertarians are quite comfortable with extreme use of state power as long is doesn’t touch their bank balances. On the other side of the coin, I should note that the Cato Institute has done some very good work on this subject, including publishing this Glenn Loury piece.
** I’m leaving aside issues about the best definition of unemployment, underemployment and so on, which have been canvassed extensively in earlier discussion.