Examining the Impact of Minimum Wage and EITC on Criminal Recidivism

Recidivism, a person’s relapse into criminal behavior, is a fundamental challenge in criminal justice. While the issue is widely discussed, few solutions have been shown to keep previous offenders from returning to criminal behavior. Part of the issue is the sheer scope of the problem: A 2005 study tracked approximately 400,000 prisoners in 30 states and found that two-thirds of them were rearrested within three years of release. Of those rearrested, property offenders were more likely to be arrested than violent offenders. Additionally, released prisoners who are younger and less educated are more likely to be rearrested, potentially due to added difficulties in finding stable, well-paying jobs upon release.

A new study by Amanda Agan and Michael Makowsky looked at this possibility in the context of general labor market policies. The authors studied the impact of minimum wage and the availability of state Earned Income Tax Credits (EITCs) on recidivism. They analyzed nearly six million individual prisoner release records from 2000 to 2014 across 42 states, using data acquired from the Bureau of Justice Statistics’ National Corrections Reporting Program. Because both minimum wage and EITCs vary by state and time, the researchers exploited this variation and used a difference-in-differences methodology to understand how those policies impact recidivism. This methodology calculates the impact of a treatment or policy by comparing the average change over time for a treated group to the average change over time for a control group. In this paper, the authors calculated the chance of recidivism for ex-prisoners living in different states and time periods with different minimum wage and EITC laws to compare the outcomes over time for the various groups.

The authors found that a 50-cent increase in minimum wage corresponds to a 2.8 percent decrease in the probability that an individual returns to prison within one year. These results were particularly noteworthy because the expected impact of a higher minimum wage on the labor market is ambiguous. Critics of a higher minimum wage claim that this increase is associated with a reduction in demand for workers. There is no clear consensus on this debate, but it is important to consider that even if this reduction is true, a recently released prisoner who does secure a job may find that the higher pay increases the opportunity cost of returning to jail. The study’s results suggest that, in this case, the benefit of higher pay dominates the effect of fewer job openings since we see a net decrease in recidivism associated with higher minimum wages.

The second labor market policy they examined was the EITC, which is a tax credit for low- to moderate-income people. EITC is designed to encourage people to work: It provides support from the very first dollar earned and eventually phases out at higher levels of income. The amount of credit received depends on the recipient’s income, marital status, and the number of children for which the individual has custodial responsibility. While it is a federal policy, some states offer their own additional EITCs. Because released prisoners face challenges in maintaining custodial rights, the state EITCs are likely to have differential effects on recently released prisoners, particularly with respect to gender. Accordingly, the authors found that the availability of state “top-ups” to federal EITCs correspond to a 1.6 percentage point (7.1 percent) lower rate of recidivism among women. There was no discernible effect on men.

This study’s results suggested new policy tools to reduce recidivism. As the paper pointed out, a 2011 Government Accountability Office (GAO) report found that approximately half of the $125 million budget for the Second Chance Act Prisoner Reentry Initiative was set aside for prisoner employment programs. A review of eight such programs implemented between 1971 and 1994 found none that resulted in statistically significant reductions in the rate of recidivism. Given this, leveraging existing labor market policies may prove more effective in providing profitable alternatives to crime for those who have left prison.

Article source: Agan, Amanda and Michael Makowsky, “The Minimum Wage, EITC, and Criminal Recidivism,” National Bureau of Economic Research, No. 25116 (2018).

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