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.

100 thoughts on “Incarceration as a labor market outcome

  1. Nanks @71

    So a “bad guy” is not responsible for his actions, because he is not responsible for who he is and so he shouldn’t be “pulled into line” but provided with an abundance of welfare.

    “Free will” is not a reality for the fatalistic/ deterministic types but very real to those libertarian types. There is no meeting of the minds here.

    I think the success of private charities are a good example of free will.

  2. @ Ubiquity #76 – I was specifically referring to moral responsibility – with the implicit commitment to punishment that seems to entail. There is no need at all to invoke ideas of punishment when deciding someone’s actions are undesirable and should be prevented.
    I can’t see how provision of welfare fits in, or are you saying people who do bad things should be killed – as imprisonment/restricted movement is a form of welfare?
    re meeting of minds – I agree. The evidence for determinism is overwhelming, the feeling that one has free will is compelling.

  3. @74 TerjeP – how do you imagine people agree upon a wage outcome in the absence of legislated boundaries?

    What has this got to do with free will?

    Why wouldn’t common law boundaries be sufficient?

  4. But how do they agree on a specific wage? – Say under your system, where there is little or no State involvement and maybe even a negative wage outcome is possible – How do you think the specific outcome is arrived at between applicant and employer without invoking any idea of choice?

  5. Terje’s argument is complete and utter rubbish.

    Terje doesn’t want a “minimum wage”, he wants a “modest citizens wage”.

    It’s typical nutcase talk. He uses a term that is superficially the same as “minimum wage”, but has a different and opposite meaning that’s only known to his own inner circle of right-thinking nutcases.

  6. I don’t mind TerjeP’s idea – as an idea to consider – that social revenue should fund a minimum wage on top of which people engage in activities that may or may not pay even more.
    Where it falls down – as I see it – is in the lack of any mechanism to prevent the aggregation and accumulation of power/wealth, the consequences of which will be inequity and misery.

  7. #@77 Nanks

    What is invoked by determinism is that responsibility never lies with those that committed an undesirable act. This undermines the integrity of the those laws that should be applied equally to all of us, and are there to protect us. In fact the determistic view tends to water down the laws that manage our society. The inevitable result is that the state and its experts will get to decide to who is bad and who is good enough to get welfare. Libertarians have a big problem with this.

    The provison of welfare by the state takes away the responsibility of the individuals for there actions and assumes the individual has no capacity or need to reason. Maybe a good idea in the deterministic dimension.

    I thought private charities is a good example of welfare by free will.

    And so the evidence for determinism isn’t worth acknowledgement when it implies our brain is independent of our actions. The fact that the heart muscle operates spontaneously is not sufficient empirical evidence to refute the above explanation. It was the recognition of free will and the capacity to reason that took us out of the dark ages. Humans realised that there fate was in there own hands not in the hands of goblins and witches.

  8. @83 Ubiquity – don’t want to get into too long a rave, but determinism doesn’t imply disconnection between brain and action – determinism requires and provides the best explanation of that connection – via cognitive neuroscience and other disciplines.
    ‘Reason’ is complex – what do you mean by reason and how does ‘reason’ take place? What are the prior conditions if not determined? When a choice occurs who makes it and how was it made without prior condition? In what sense is an individual responsible for their own ontogeny and environment? Or are you saying that the person exists prior to and/or independent from their development etc.
    A deterministic view does not imply welfare or state structure.

  9. Re#74 Terje, My point is that this is a category of person for whom a longterm commitment of care is essential; then there are those with quite profound mental illness for whom care simply must be specialised. While a small government footprint might be a nice guiding principle, any realistic system needs to at least pose a solution for dealing with people who find themselves in this category.

  10. 85# Donald and Terje.

    Ill throw a spanner in the works here and say a small government may be someone’s idea of a guilding principle….just not mine. Im certainly no totalitarian either Terje so dont accuse me of that!

    I think we have taken this whole idea of small government too far already. Vital infrastructure is not being attended to. The mentally ill have effectively been left to the streets, hospitals are in decay, public education systems falling apart, trains at capacity, ferries sunk, roads are at congestion point (a cost on everyone and a pollution cost) and the wealthy have been given large tax reductions, still avoid tax, and receive family payments or other lurks they dont need.

    Its gotten ridiculous, inequitable and unfair. Im no fan of government committees of middle/ upper class politicians or bureacrats who pay themselves exorbitantly and rort expenses either, but the mess that surrounds us now is the product of people who seem to believe we can all get away with few taxes and tiny governments.

    Its making a mess but it also shows a lack of social responsibility, a lack of “charitable free will” as someone mentioned, and the desire for as much individual greed as possible. If its good enough to donate to a private charity – and it clearly isnt for most or we would have more of them – then its good enough to pay taxes for infrastructure and social welfare.

    All I see is the selfishness of libertarianism with its “small governments” and “tiny taxes” views. Predicated on a narrow self centred distinctly uncharitable stand.

    Malcolm Turnbull wants a flat tax as well (no progressiveness in the tax system) – the greed and selfishness of the Coalition never ends.

  11. I think we have taken this whole idea of small government too far already.

    Alice this is rubbish. We have not taken the idea anywhere let alone too far. By almost any measure, be it the number of laws, the amount of spending, the amount of taxation there is no notable point in the last 100 years where the government has done anything other than get bigger and bigger and bigger. It is one thing to be against smaller government but quite dishonest to suggest that we have tried it.

  12. 87# Terje
    There are hardly any more employees than twenty years ago. What you suggest is rubbish.

    The population that use government services has grown and the state of infrastructure needs to be maintained at least to pretend we are still worthy of being considered an “advanced nation.”
    You really wouldnt think so sometimes.
    I really am over the people that want to push the lower taxes, lower taxes line!

  13. Alice, I am not altogether sure whether you are arguing that the size of government has shrunk or that it simply hasn’t expanded fast enough in size to meet increasing needs.

    In any case, the notion that Australia today has small government by historical standards is rubbish.

    Consider: before the Whitlam government came to office Australia had no system of universal health insurance, little funding of tertiary education, little or no public funding of childcare, lower levels of public sector employment, and a far lower percentage of the population relying on government income support. Despite that, society seemed to function as well as now all things considered.

    Right now, we don’t have anything close to “small government” by historical standards. But more importantly, even when government was actually smaller, it didn’t generally produce the kind of disastrous consequences that you insist are the result of small government.

  14. Re#89: Circumstances have changed considerably since the late 60’s/early 70’s.

    Pre-Whitlam society had little or no funding of childcare because the wife was the default carer. The census response by married women was “home-duties”; a few managed to remain employed after marriage but that wasn’t the social expectation. A family could purchase a house solely on the single income. I think I’m right in saying that only 55,000 university student places existed prior to the introduction of TEAS by Gough Whitlam (1973, IIRC). Oh, and unemployment was looow! By 1982/1983 it was running at around 10%, a result that cost the Liberals (and a much younger John Howard, as treasurer) the election.

    Since then there have been some fairly obvious social changes, and correspondingly necessary adaptations by government, including significant policy shifts.

    Given all this, is it really a fair comparison of government sizes pre-Whitlam and government now?

  15. 90# Donald
    I agree – and as for policy direction post 1970s this country has become a snakepit of tightwads!!

    Its all about “me”, looking after oneself, not giving a stuff about welfare, the unemployed, the disabled or the mentally ill or public infrastructure…to the extent of even whinging and lobbying about how much governments spend on ANYTHING at all…in fact wanting a stripped down government because it will save the “me, myself and Is out there a few more cents of tax.”

    The wealthy lobbyists are on the bandwagon at every opportrunity they get via the media to castigate government spending and attempt to grab back the tax pot. Even our deficit is a piddlingly small deficit compared to every other OECD country.

    A selfish attitude has been in the ascendancy for some decades now. Obsession with materialism, and the attitude that the poor are poor because they deserve to be poor and the expectation that taxes are collected for the sole purpose of giving it all back to people who dont need it.

    Australia these days? – Just a nation of nasty tightwads.

  16. Donald, if you want to argue that because of social changes we need bigger government today than in the past, then that is a different point to what I was responding to.

    I was merely responding to Alice’s claim that Australia has gone too far in the direction of promoting small government. Compared to the past, Australia has nothing like small government today.

    I don’t believe that the growth of government is entirely due to changes in society and its needs. It is partly driven by a shift in culture and attitudes. Today people have been conditioned to believe that it is the government’s responsibility to look after people and solve every problem. In the past, people didn’t really have that attitude so much and accepted that it was their responsibility to look after themselves and their families.

  17. 92# MU says

    “Today people have been conditioned to believe that it is the government’s responsibility to look after people and solve every problem.”

    Nonsense Monkeys Uncle. People should be able to expect that the country doesnt fall into a stripped down malfunctioning infrastructure basket case. Thats not “wanting the government to look after them”.

    Since the 1970s (the rise of the selfish tightwads Ill call it) there has been review after review of the public sector with the purpose of reductions. In fact I wouldnt mind betting JH started all of it..

    Here is a start….

    “From the late 1970s, increased government emphasis was placed on maintaining strict control over the size of the public service. In 1980 the Prime Minister announced a Review of the Functions of Government and of Public Service Staffing Levels (Review of Commonwealth Functions-RCF) with the explicit aim of achieving smaller government by eliminating what the government saw as waste, duplication and unnecessary costs.”

    Public sector reform has gone way too far and I would suggest, with…. the explicit aim of allowing the tightwads to keep their taxes and beggar the infrastructure and everyone else.

  18. Alice, correct me if I’m wrong, but I recall you mentioning that you teach economics. Would you mind telling me where?

  19. Public sector employment has
    fallen by 80,000 jobs since 1987 (despite population increases and the now bad unemployment situation). Thats criminal. Its also more than half of public sector employment. Those people spent money and paid taxes. Every public asset that could be found anywhere has been sold (a hell of a lot under you know who again – JH – a one man wrecking yard).

    Thats criminal negligence. Many of these public assets were returning profitable income streams to the government and providing good services (and jobs).

    Public sector debt until the recent piddling deficit by OECD standards (Australia the only G7 Country to have a negative net debt).”Since 1970-71, net debt has averaged 5.7 per cent of GDP, reaching a peak of 18.5 per cent in 1995-96, and a low of -3.8 per cent of GDP in 2007-08.”

    Just in case Terje thinks 18.5% is too high it pays to remember that its been a lot higher in the past like between 1920 and 1942 it was over 40% – and what did that help give us?

    Im thinking the post war boom.

    The tightwads that operate as if the government has the cholera and cant act as stimulus in its own right (let alone maintain, build and run infrastructure that is adequate for everyone else’s needs to invest etc) are just losing it.

    Im damn sure there are conservatives in the Coalition who think the party has been taken over by nutcases and wonder why we cant operate a few trains on time without carriages that look as overcrowded and as dirty as the Bombay express or why our hospitals look almost decrepit and they cant get hold of a dressing pack.

    Tax reductions for liberalist government hating misers and the inequitable tax refunds given to the wealthy will not (in a million years) bring us the rushing queue of private sector operators who are willing and able to build us an underground metro in Sydney, yet someone needs to get started on it (instead of scrabbling for stamp duties from packed in units on the same congested roads).

    Some people have really lost it.

  20. I deleted numerous trojans, but I’ll ask everyone to move discussion to the Monday Message Board, as I’m going to have to close comments here.

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