The Economics of Begging

In cities around the globe, people can be found street-side asking for money. While there are some who chose to perform or sell small goods, others ask for cash without offering anything of value in return. These individuals, known as panhandlers, face harsh public scrutiny for begging, rather than working, for money. A recent article, published in the Journal of Urban Economics, evaluates panhandlers’ choices using a labor economic framework.

Labor economics studies how firms and workers make employment decisions in a world of scarce resources. In the standard model, an employer “demands” labor, and workers “supply” a quantity of work hours based on offered wages.

Researchers Gwendolyn Dordick et. al. extend this model to understand how the number of panhandlers in a city changes in response to evolving local policy and earning potential. Their insights indicate that we can understand panhandling as its own labor market.

The researchers suggest that people who choose to panhandle are uniquely willing to accept a low per-hour income given the stigma and harsh conditions inherent in spending long hours on the street. The authors cite previous research that has established that panhandlers earn, on average, roughly minimum wage for each hour worked. The flow of donations is unpredictable, however; in many hours, a panhandler will earn much less.

Downtown Manhattan is a highly affluent area that nearly 800,000 adults living in poverty can easily access via public transportation, making it an ideal location for would-be panhandlers to set up shop. Focusing on a sample of 71 blockfronts, the authors found that the supply of panhandlers was inelastic: for every percent change in income in the panhandling market, there is a smaller percent change in the number of people willing to beg for money. In other words, an increase in panhandlers’ earning potential does not increase the number of people willing to panhandle. There is a limited, near-fixed quantity of people willing to endure the environmental exposure, stigma, and unpredictability of working as a panhandler, regardless of the earning potential.

The authors came to this finding by comparing the number of panhandlers working on sample blocks during peak hours in the summers of 2014 and 2015. Between the two summers, tourism in downtown Manhattan grew by 30%, suggesting a sizable increase in panhandlers’ earning potential. While the total number of panhandlers stayed the same, panhandling within the tourist zone increased by 70%. These trends demonstrate that the increase in panhandling in the tourist zone was more likely the result of panhandlers strategically relocating from other blockfronts in Downtown Manhattan than a wave of new panhandlers in the area.

By considering the available supply of profitable locations within downtown, the authors further conclude that there is no opportunity for a monopolist to manipulate the market by controlling blockfronts and planting panhandlers. Space is both free and well-supplied, and at any given moment many potentially lucrative blocks go unoccupied. Panhandlers generally do not attempt to unseat an incumbent already working a block and, finding a preferred block occupied, will simply relocate to another nearby area. Given the excess of viable locations and limited supply of labor, there is no profit a monopolist could extract by attempting to control the panhandling market.

The research suggests that local panhandling-friendly policies are unlikely to increase the number of people working on the street. Panhandlers choose to beg for money because of unique circumstances that limit their employment or foster a preference for staying outside the traditional workforce, not because panhandling is lucrative. A surge in donations in a concentrated area might cause some panhandlers to relocate within a neighborhood but will have little to no impact on the total number of panhandlers in a city. City leaders can alleviate some of the stress and stigma associated with panhandling by loosening restrictions on where and how panhandlers work. Through understanding the local issues that might lead someone to choose panhandling over traditional employment, and working to address these underlying causes, municipalities may be able to enact lasting change.

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Article source: Dordick, Gwendolyn, Brendan O’Flaherty, Jakob Brounstein, Srishti Sinha, and Jungsoo Yoo. “What happens when you give money to panhandlers? The case of downtown Manhattan.” Journal of Urban Economics 108 (November 2018): 107 – 123.

Featured graphic, created by: Gloria Dorame.