The Minimum Wage, EITC, and Criminal Recidivism

Abstract

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-indifferences 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 $0.50 reduces the probability that men and women return to prison within 1 year by 2.8%. This implies that on average the effect of higher wages, drawing at least some released prisoners into the legal labor market, dominates any reduced employment in this population due to the minimum wage. These reductions in returns to incarcerations 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.

Do Minimum Wage Increases Reduce Crime?

“…Using estimates of the crime elasticity with respect to wages from Gould et al (2002), the CEA concluded that raising the Federal minimum wage from $7.25 to $12 per hour would decrease crime by 3 to 5 percent, or 250,000 to 510,000 crimes annually (CEA 2016), resulting in $8 to $17 billion dollars per year in cost savings (CEA 2016). Consistent with the CEA's prediction, recent work by Agan and Makowsky (2018) finds that minimum wage increases are negatively related to criminal recidivism.…”

Strategies to Productively Reincorporate the Formerly-Incarcerated into Communities: A Review of the Literature

“…Similarly,Agan and Makowsky (2018) find that being released when the EITC is more generous or when the minimum wage is higher -up to $9.50/hour -reduces recidivism.…”

Formal Employment and Organized Crime: Regression Discontinuity Evidence from Colombia

“…Even though models of criminal activity are based on individual behavior, we often test these models using aggregate area-based relationships like unemployment shocks (Agan and Makowsky, 2018;Bennett and Ouazad, 2018;Cornwell and Trumbull, 1994;Entorf, 2000;Foley, 2011;Fougere et al, 2009;Gould et al, 2002;Karin, 2005;Lin, 2008;Machin and Meghir, 2004;Raphael and Winter-Ember, 2001). Area-based relationships are meaningful and policy relevant as they inform how to broadly target crime deterrence strategies.…”