The Economic Impact of Incarceration: A Human Capital Perspective

Criminal Defence and Labour Economics

Criminal defence plays a major role in labour economics in helping to defend people against any criminal accusations. The main framework that is used to analyse this relationship is human capital theory; human capital refers to the skills, knowledge and experience that contribute to productive efficiency and help generate income. Human capital is how an individual earns income from working. Therefore, being incarcerated can be legally considered a form of punishment as well as being an economic disadvantage to the individual. According to the Bureau of Justice Statistics, the time individuals are away from work due to being incarcerated interrupts their build-up of human capital (i.e. skills), limits their access to work, and reduces their opportunities for earning an income during their lifetimes. Because of the above facts, the value of not having to serve time in prison is very high economically and not just legally, and therefore, indicates why criminal defence is so important to an economy.

Opportunity Cost of Incarceration

Loss of Income and Career Progression

One consideration that must be taken into account when measuring the total opportunity cost of incarceration is the economic loss of being removed from the workforce. In addition to losing potential wages, incarcerated individuals lose the ability to develop their skills and gain experience up the career ladder in their respective fields. The Bureau of Labour Statistics has recently released statistics indicating that the median salary for full-time workers in the U.S. as of January 2023 is over $50,000 per year. Thus, if an individual serves only a few months in prison, they stand to lose (in terms of opportunity cost) tens of thousands and in many cases hundreds of thousands of dollars worth of income. Moreover, the opportunity cost of incarceration does not end when the prisoner is released; the disruption in their work history may linger on for many years after the incarceration has ended, ultimately being marginally reduced in the long-term thanks to the disruption in work experience.

Skill Depreciation

Impact of Technological Change

Skill depreciation is perhaps the most significant factor in contributing to the above issues, and this issue is exacerbated when technological change has occurred during the period of incarceration. Skills that are not utilised over an extended period of time tend to deteriorate, especially in industries where technology is changing rapidly. For example, an individual who previously worked in a technical field may be unable to reach a level of competence in their previous occupation after being released due to the amount of time that has passed since they have worked and therefore the inability to keep up with new technology. Even in cases where individuals who were very efficient prior to incarceration find their old levels of efficiency in a non-technical work environment, it may take a significant amount of time for them to return to that level of efficiency.

Opportunity Cost and Long-Term Earnings

Opportunity costs of incarceration are among the strongest considerations involved in the question. When someone is removed from the workforce, they lose potential wages, skill development, and advancement within a given field as they develop their careers. According to upcoming reports from the Bureau of Labour Statistics, the January 2023 median annual income of full-time workers in the United States is greater than $50,000, suggesting that just a few months in prison would result in tens of thousands (or in some cases, hundreds of thousands) of dollars in lost wages. In addition, the opportunity cost incurred while in prison lasts beyond the time served; typically, interruptions to work history, as a result of being incarcerated, lead to long-term reductions in the earning potential of the formerly incarcerated individuals.

Reduction in Earning Potential

Loss of Skills

The greatest contributor to this reduction in earning potential is the loss of skills that occur during time spent in prison, and this can also be affected by technological advances. When a person has not been using certain skill sets for a while, those skills deteriorate over time, particularly in rapidly changing work environments. A technical professional who has been away from the workforce for a number of years may find that their previous competence is no longer there because they have not been able to update their skills to keep them current. In some cases, even if an individual returns to a non-technical job, that person may find it difficult to return to their previous level of productivity given that they were productive prior to incarceration.

Economic Impact of Incarceration

Income and GDP Effects

Data in the real world demonstrate significant effects of incarceration on both the economy and individuals who have been previously incarcerated. Studies demonstrate that people who have been incarcerated earn 10 to 40 percent less per year than similarly qualified individuals who have never been incarcerated; therefore, the total amount of lost earnings per person over their lifetime is in the hundreds of thousands of dollars. Ultimately, the inability of formerly incarcerated individuals to participate in the labour force also has tens of billions of dollars of negative impact to the total U.S. GDP each year because of lower productivity.

Wider Social and Economic Effects

The impact of incarceration has far-reaching consequences on the broader economy; effectively, by creating a smaller pool of individuals in the labour force, the overall reduction in labour productivity has negative impacts on economic growth. When family members provide financial assistance to incarcerated family members, the expense becomes a financial burden that limits overall family consumption patterns, family educational success, and ultimately the long-term economic sustainability of future generations of the family. As a result, the costs associated with incarceration may be both direct and indirect costs for society.

Legal Representation and Human Capital

In terms of human capital theory, providing a person with legal representation is an investment in their productivity; it increases the likelihood that they will defeat the charges against them. Legal representation will also decrease the likelihood of incarceration or the length of time that may be spent incarcerated, because of the effective legal work being done for them. The consequence of this is that it keeps people in the workforce and able to develop skills and obtain work, especially if the outcome of the criminal matter is uncertain and the lawyer's knowledge of legal proceedings in general can affect the outcome of the client's case.

Alternatives to Incarceration

Probation and Diversion

Diversion or probation are both examples of alternative sentencing. An individual placed on probation or in a diversion programme is still able to maintain their employment, provide for themselves and be able to build their work history. On the other hand, the effect of incarceration is disruptive to a person's work history, as discussed above. The impact of having an extended period of time for both groups of individuals will have a significant impact on their ability to retain their human capital over the long-term.

Long-Term Economic Perspective

When understanding the impact of incarceration from the perspective of human capital, the emphasis shifts from the immediate impact of the criminal proceeding to the long-term impact economically. The loss of time, skills, and opportunity represents a large cost to both the individual and society as a whole. When viewed this way, decisions regarding the maintenance of an individual’s ability to remain in the labour force have implications for society that extend beyond the individual, impacting productivity, earnings, and participation levels throughout the economy as a whole.

Disclaimer

Please be advised this article is for informational purposes only and should not be used as a substitute for advice from a trained legal professional. Please seek the advice of a legal professional if you’re facing issues regarding criminal proceedings or incarceration.