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The Economic Challenges of Crime & Incarceration in the United States

High rates of crime and incarceration impose tremendous costs on society, with lasting negative effects on individuals, families, and communities. Crime rates in the United States have been falling steadily, but still constitute a serious economic and social challenge. At the same time, both crime scholars and policymakers alike question whether incarceration rates in the United States are too high. With more than 700 out of every 100,000 people incarcerated, we must ask whether the social costs exceed the social benefits, for non-violent criminals in particular. Earlier this year, The Hamilton Project released a set of economic facts about crime and incarceration in the United States that underscore the magnitude of the challenges and frame the issue through an economic lens.

While there is significant policy focus on America’s incarceration policies, it is also important to consider that crime continues to be a focus of concern for policymakers, particularly at state and local levels. In addition to private spending by households and businesses, public spending on fighting crime, including the costs of incarceration, policing, and judicial and legal services is substantial. There are also tremendous social costs, including the tangible costs of victimization, such as medical costs and lost earnings, as well as intangible costs, such as pain and suffering.

In addition, crime and incarceration disproportionately impact low-income individuals and communities, raising concerns about impeded upward mobility and a perpetuation of inequality. Indeed, previous work on this topic shows that victimization rates for all types of personal crimes are significantly higher for individuals living in low-income households. In 2008 — the latest year for which data are available — the victimization rate for all personal crimes among individuals with family incomes of less than $15,000 was over three times the rate of individuals with family incomes of $75,000 or more. The most prevalent personal crimes for low-income victims are assault and acts of attempted violence, at 33 victims and 28 victims per 1,000 persons age twelve or older, respectively.

Crime also stymies economic growth. For example, exposure to violence can inhibit effective schooling and other developmental outcomes (Burdick-Will 2013; Sharkey et al. 2012). Crime can induce citizens to migrate: economists estimate that each crime reduces a city’s population by approximately one person and each homicide reduces a city’s population by 70 (Cullen and Levitt 1999; Ludwig and Cook 2000). To the extent that migration diminishes a locality’s tax and consumer base, crime-fueled departures can threaten cities’ ability to effectively educate children, provide social services, and maintain a vibrant local economy.

The good news is that crime rates in the United States have been falling steadily since the 1990s, reversing an upward trend from the 1960s through the 1980s. There does not appear to be a consensus view among scholars about how to account for the overall sharp decline, but contributing factors include increased policing, rising incarceration rates, and the waning of the “crack epidemic” that was prevalent in the 1980s and early 1990s.

Despite the ongoing decline in crime, incarceration rates in the United States remain at historically unprecedented levels. High incarceration rates can have profound effects on disadvantaged communities. Research has shown that incarceration may impede employment and marriage prospects among former inmates, increase poverty depth and behavioral problems among their children, and amplify the spread of communicable diseases among disproportionately impacted communities (Raphael 2007). In particular, these effects are especially harmful for particular demographic groups — often young minority males — who struggle to gain employment or lead productive lives post-incarceration. In addition, high rates of incarceration are expensive for both federal and state governments. On average, it costs over $29,000 each year to house an inmate in federal prison (James 2013). In total, the United States spent over $80 billion on corrections expenditures, with over 90 percent of these expenditures coming from state and local levels (DOJ n.d.b.).

To explore potential policy responses to the challenges of crime and mass incarceration in the United States, The Hamilton Project has hosted two forums and released three policy proposals focused on keeping disadvantaged youth from engaging in violence and entering the juvenile justice system, reducing incarceration rates for non-violent criminals through sentencing reform, and supporting the formerly-incarcerated as they leave the criminal justice system and work to re-engage with the labor force and their communities.

The passage of the statewide ballot initiative, Proposition 47, in California last November was symbolic of a national effort to reform incarceration policies, and perhaps reflected a broad recognition of the costs that incarceration imposes on society. The statewide initiative reduces penalties for illicit drug use and petty theft; more specifically, it reclassifies possession of heroin, methamphetamine and other illegal drugs, and theft of $950 or less, as misdemeanors in California. Following its passage, California will become the first state to “de-felonize” all drug use, opening the door for similar efforts in other states. The passage of Proposition 47 may signal that policymakers and the public alike are open to pragmatic reforms to reduce both crime and incarceration in the United States.


In earlier, related work, The Hamilton Project released a policy memo emphasizing a number of challenges facing low-income families in this country. That memo noted that nearly 20 percent of American families with children are officially classified as living in poverty—which for a family of two adults and two children means having an annual income of less than $24,000—and an additional 30 percent have sufficiently low income that they live with many of the same stressors that come from being poor. That memo also underscored the challenge of food insecurity facing many Americans: 22 percent of our nation’s children live in households in which parents worry about having enough food to feed their family. An earlier Hamilton Project policy memo focused on the limited economic mobility for low-income individuals, citing work showing that a child born to the lowest income quintile, or to the poorest fifth of parents, has a 43 percent chance of remaining in that income quintile, or being very poor, as an adult.


Last summer, The Hamilton Project released a volume of 14 proposals to help address poverty in America. The volume sets forward a multi-faceted approach to tackling poverty, ranging from new approaches to promoting early childhood education, supporting disadvantaged youth, building skills, and improving safety net and work support. Policies that lift more Americans out of poverty have the potential to profoundly impact rates of crime and incarceration. These issues are all interrelated.


A founding principle of The Hamilton Project’s economic strategy is that long-term prosperity is best achieved by fostering economic growth and broad participation in that growth. Elevated rates of crime and incarceration directly work against these principles, marginalizing individuals and devastating affected families and communities, both socially and economically.


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