Why the Incarceration Boom Happened
Justin Fox is a Bloomberg View columnist. He was the editorial director of Harvard Business Review and wrote for Time, Fortune and American Banker. He is the author of “The Myth of the Rational Market.”
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In 1999, the unemployment rate in the U.S. was just 4.2 percent, compared with 8.6 percent in Germany and 11.3 percent in France. The labor force participation rate (the percentage of the working-age population either with jobs or actively looking for them) was substantially higher in the U.S. than in those countries, too.
The standard explanation that economists offered for this disparity was that U.S. labor markets were less heavily regulated than those in Europe. As sociologists Bruce Western and Katherine Beckett summarized in the American Journal of Sociology in 1999:
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The standard explanation that economists offered for this disparity was that U.S. labor markets were less heavily regulated than those in Europe. As sociologists Bruce Western and Katherine Beckett summarized in the American Journal of Sociology in 1999:
In this model, job seeking is intensified by meager state support for the unemployed, and low unionization allows wages to adjust to market conditions. In Europe, institutions introduce inefficiency: large welfare states and strong unions stifle labor demand and reduce work incentives.Western and Beckett had a different hypothesis. The U.S. had actually engaged in a “sizeable, nonmarket reallocation of labor” in the 1980s and 1990s, they wrote -- by throwing huge numbers of men into prison.
Our central argument is that U.S. incarceration lowers conventional measures of unemployment in the short run by concealing joblessness among able-bodied, working-age men, but it raises unemployment in the long run by damaging the job prospects of ex-convicts after release.Subsequent labor market developments appear to have borne this out. The U.S. unemployment rate, at 5 percent in September, still looks good -- it’s a little higher than Germany’s, if you go by the harmonized rates that adjust for differences in national unemployment definitions, and a lot lower than France’s. But as has been discussed at great length this election season, this number fails to reflect the fact that millions of Americans have stopped looking for jobs, and thus aren’t counted as unemployed. The U.S. labor force participation rate, among the world’s highest in the 1990s, now lags that of many other wealthy countries.
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