How 2.3 Million Incarcerated People Are Currently Excluded from the Aspiration of Full Employment

May 17, 2021

  • What is currently considered full employment doesn’t include 2.3 million incarcerated people—who are largely in prison due to the racist criminal justice policies that result in higher arrests, convictions, and sentences for Black and brown people.
  • An excessive fear of economic “overheating”  reinforces the root causes and high recidivism rates of the US prison system, which has a disproportionate, multigenerational impact on Black and brown employment rates, wages, and communities.
  • We also underestimate the productive capacity of our economy when we exclude people in prison from the potential labor force.
  • Solutions:
    • The Bureau of Labor Statistics (BLS) and Congressional Budget Office (CBO) should include incarcerated people in their definition of the civilian population.
    • The BLS should integrate new questions and variables into the monthly surveys it analyzes to determine the health and status of our labor market.

On March 27, 2021, my neighbor Victor Monroe—known to some as Brooklyn Moe and to others as Squirt—died from COVID-19, less than a year after returning home from 27 years in prison. The last photo he posted on Facebook, just 10 days before his tragic and untimely death, included the caption, “Another day heading to work. Damn it feel good to say that after doing 27 years in the belly of the beast.” 

Victor’s death is one more tragedy to add to a year full of loss. And his last post captures the difficult journey to employment faced by the US’s 2.3 million incarcerated people, at least 500,000 of whom come home every year. 

Like Victor, the vast majority of people currently in prison or on their way home from prison are able and eager to work. When they enter the labor market, however, they experience the tangible effects of false economic and social assumptions—the assumptions that mass incarceration is a permanent, unchanging feature of our society, and that calculations of the potential labor force and the concept of full employment should not include incarcerated people.

 

How the Unemployment Target Is Built on Racist Assumptions

The pandemic is not over. But it is ending, and as it does, employment in industries hard-hit by the lockdowns is recovering—albeit at an inconsistent pace. As jobs return, some economists and public officials are beginning to worry that employment is growing too fast. 

Perhaps the biggest lesson from the Great Recession is that reacting to these concerns now would be a mistake. If we don’t do enough to support demand at this critical time, the recovery may not bring us to our economy’s potential output and full employment, where everyone who wants a job can find one. In fact, weak demand hurts those at the bottom of the income distribution hardest, leading to needlessly prolonged unemployment and greater inequality.

It is imperative, then, to carefully scrutinize the economic indicators we currently use and their underlying assumptions. We want to continue to grow the economy until there is as much space as possible for disenfranchised workers—including people in prison and people coming home from prison. 

Earlier this year, Employ America highlighted the structural racism built into the estimates of the Non-Accelerating Inflation Rate of Unemployment (NAIRU) used by the Fed—the level of unemployment that is expected to coincide with an acceptable level of inflation. The Congressional Budget Office’s (CBO) model for NAIRU assumes that a Black unemployment rate of 10 percent, more than double the rate for white workers, is “natural” and inevitable—that anything lower would indicate dangerous overheating. Definitions of employment, unemployment, and the labor force, and how they are measured, can have a real impact on how we manage the economy moving forward and who benefits from economic recovery and growth.

But while there has been increasing recognition of the troubling assumptions built into the unemployment rate, there has been much less discussion of the people who are incarcerated or institutionalized, who are not counted by the Bureau of Labor Statistics (BLS) at all—not even as “not in the labor force.”

 

How Labor Force Definitions Exclude Incarcerated People

Officially, the labor force is defined as all people working or looking for work who are part of the civilian noninstitutionalized population (CNIP). CNIP is anyone 16 years old and older who is not on active military duty, in prison, in a nursing home, or in any other institutionalized setting. In total, it is estimated by the CBO as roughly 5–6 million people and growing.

Estimates of the different components of the institutionalized population do not come from BLS surveys but from different state agencies, and they don’t always add up. Today, there are roughly 1.5 million people on active military duty, 1 million people in nursing homes, and 2.3 million people incarcerated. 

The United States has a legacy of racist criminal justice policies that results in higher arrests, convictions, and sentences for Black and low-income people, resulting in the largest prison population and highest incarceration rate in the world. 

In 1970, the number of people held in county, state, and federal prisons and jails was only 326,000. Today, with 2.3 million incarcerated, people in prison comprise roughly half of the institutionalized population that is excluded from the government’s definition of the labor force. 

The rationale for excluding incarcerated and many other institutionalized people from the population who are considered the labor force in some ways makes sense; they aren’t free to refuse forced labor in prison or be a part of the labor market. However, their exclusion from the population of people who are potential free workers is a serious problem for our society broadly, and for economic policy in particular. 

 

How Current Labor Market Assumptions Reinforce High Recidivism and Constrain Economic Potential

An excessive fear of economic “overheating” reinforces the root causes and high recidivism rates of the US prison system, which has a disproportionate, multigenerational impact on Black and brown employment rates, wages, and communities.

People incarcerated in the US typically pass through a revolving door; sentenced for relatively short periods for overwhelmingly nonviolent property crimes, they return to society only to face increased discrimination due to their criminal record. 

While some think of prison as enforced idleness, many prisoners work. More to the point, many are actively looking for work. Numerous states require people in prison to have a job and housing lined up as a condition for release. Employment is also often a requirement for getting off of parole or probation. A tight labor market, with low unemployment, makes it possible for people leaving prison to avoid returning to it. With high unemployment, this is much harder.

In the past 10 years, thanks to tireless grassroots organizing, many states have shortened sentencing requirements for the drug offenses that contributed to the explosion of the US prison population. People in prison are more likely to be facing a short, determinate sentence during the prime age of their life than an indefinitely long-term or life sentence. In recent years, there have been at least 500,000 people returning home from prison every year. But whether or not they can stay out depends on their ability to find stable housing and employment. 

If we do not acknowledge people in prison and drug rehabilitation programs as job-seekers and create space in the economy for them to return to, the US will be unable to break the recidivism rate that fuels mass incarceration to this day. Excluding their need for employment, like the CBO does now in its projections for potential output, actually limits incarcerated people’s ability to leave prison. 

The specific issue mass incarceration creates for macroeconomic policy is that we also underestimate the productive capacity of our economy when we exclude people in prison from the potential labor force. 

The vast majority—approximately 90 percent—of people in prison are under the age of 55. They are at the stage in their lives when they would typically be their most productive and earn their highest wages. 

This untapped potential is unique to the US, where the incarceration rate is six times larger than Canada’s, nine times larger than Germany’s, and 14 times larger than Japan’s. By maintaining a system of mass incarceration, the US is imposing barriers on its economic potential that no other advanced economy is facing. A discussion of potential output and unemployment that does not account for this is implicitly assuming that mass incarceration is an unchangeable fact about the United States. 

The problem is not just that the appalling number of people incarcerated in the US leads to an overly pessimistic estimate of potential employment. The converse is also true: Setting our employment sights too low makes it harder to bring incarceration rates down.

 

How Tight Labor Markets Help

Empirical evidence shows that a hot economy—one in which GDP is growing rapidly—is the only reliable route to tight labor markets and full employment. 

An important benefit of tight labor markets is that they boost wages for lower-income workers and open doors for workers who have historically faced discrimination in the labor market. Some economists may claim that the 2.3 million or more people excluded from the CNIP due to their institutionalization has little impact on the final calculation for the unemployment rate or the economy’s full potential. And it is true that adding these people to the CNIP baseline would have only a modest effect on labor-market statistics. But that doesn’t mean that incarceration is unimportant to the larger discussion of full employment. 

History shows that only when labor is scarce will employers set aside entrenched discriminatory practices that limit employment options for stigmatized groups—with people leaving prisons being among the most stigmatized. 

If we do not take into account people in prison, who face some of the worst discrimination in the labor market, when we are deciding what level of employment growth to pursue, their chance of permanently escaping the criminal justice system will be slim.

 

What the BLS and CBO Can Do

One straightforward step the BLS and CBO should take is including incarcerated people and other institutionalized populations in their definition of the civilian population, which forms the basis of many labor-market indicators. By doing so, they would raise their projections for output potential and full employment. This would set a new bar for employment growth—one that makes space for people in prison.

Because we do not know enough about the people excluded from the CNIP, we don’t fully understand the impact of incarceration on people’s employment prospects, wages, and recidivism rates. For a better understanding, the BLS should integrate new questions and variables about incarceration into the monthly surveys it analyzes to determine the health and status of our labor market. 

The COVID-19 pandemic has inspired many people and elected officials to think about rebuilding our economy and society in bigger and better ways. Let’s make visible the people who have been cut out of our projection of America’s economic potential and end the disgraceful and dehumanizing system of mass incarceration.

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