Add prisoners to the unemployed? Higher unemployment!

Outsourced to one of my favorite bloggers, Megan McArdle:

John Quiggin has been arguing it is. That's why he wants to add America's higher incarceration rate to its unemployment statistics when comparing us to Europe.

To my surprise, when I proposed this theory to Mark Kleiman a while back, he disagreed. Crime is only very weakly correlated with changes in the labor market. It spiked during the golden age of unskilled employment in the 1950s and 1960s, and then fell for no particular reason during the poor labor market of the early 1990s. Crime is a labor market outcome in the sense that people with poor impulse control gravitate towards a "job" that requires little in the way of gratification delay, not in the sense that people who end up in jail literally had no alternatives, or even no better alternatives. In the normal operation of the American economy, most people who want a job can find something. Given the low probability-weighted returns to crime, often even something better than sticking up 7-11s.

There are other problems with the theory. Even if crime were a labor market outcome, incarceration is a policy outcome, not a labor market outcome, because incarceration has increased even as crime has fallen. Furthermore, what correlation there is between crime and the economy is to property crimes--burglary, etc. Violent crime, which accounts for more than half of America's incarceration rate, and virtually all of the change in our incarceration rate since 1980, isn't clearly related to the economy. In theory, being laid off might make you more prone to bar fights or beating on your girlfriend. In practice, it doesn't seem to show up in the numbers.

Now, one could argue that high incarceration rates are supressing the unemployment figures. But America's employment-to-population ratio is still higher than Europe's, though a number of individual European countries do better than we do.