Incarceration, Earnings, and Race

73 Pages Posted: 10 Mar 2022

See all articles by Kartik Athreya

Kartik Athreya

Federal Reserve Banks - Federal Reserve Bank of Richmond

Grey Gordon

Federal Reserve Banks - Federal Reserve Bank of Richmond

John Bailey Jones

Federal Reserve Bank of Richmond; SUNY at Albany - School of Business

Urvi Neelakantan

Federal Reserve Banks - Federal Reserve Bank of Richmond

Date Written: July 1, 2021

Abstract

We study the implications of incarceration for the earnings and employment of different groups, characterized by their race, gender, and education. Our hidden Markov model distinguishes between first-time and repeat incarceration, along with other persistent and transitory nonemployment and earnings risks, and accounts for nonresponse bias. We estimate the model using the National Longitudinal Survey of Youth 1979 (NLSY79), one of the few panel datasets that includes incarcerated individuals. The consequences of incarceration are enormous: First-time incarceration reduces expected lifetime earnings by 39% (59%) and employment by 8 (13) years for black (white) men with a high school degree. Conversely, nonemployment and adverse earnings shocks increase expected years in jail. Among less-educated men, differences in incarceration and nonemployment can explain a significant portion of the black-white gap in lifetime earnings—44% of the gap for high school graduates and 52% of the gap for high school dropouts.

Keywords: earnings dynamics, incarceration, racial inequality

JEL Classification: C23, D31, J15

Suggested Citation

Athreya, Kartik and Gordon, Grey and Jones, John B. and Neelakantan, Urvi, Incarceration, Earnings, and Race (July 1, 2021). FRB Richmond Working Paper No. 21-11, Available at SSRN: https://ssrn.com/abstract=4054095 or http://dx.doi.org/10.21144/wp21-11

Kartik Athreya (Contact Author)

Federal Reserve Banks - Federal Reserve Bank of Richmond ( email )

P.O. Box 27622
Richmond, VA 23261
United States

Grey Gordon

Federal Reserve Banks - Federal Reserve Bank of Richmond ( email )

P.O. Box 27622
Richmond, VA 23261
United States

John B. Jones

Federal Reserve Bank of Richmond ( email )

P.O. Box 27622
Richmond, VA 23261
United States
804 697-8206 (Phone)

HOME PAGE: http://www.albany.edu/~jbjones

SUNY at Albany - School of Business ( email )

Bus Admin 110
1400 Washington Avenue
Albany, NY 12222
518-442-4926 (Phone)

Urvi Neelakantan

Federal Reserve Banks - Federal Reserve Bank of Richmond ( email )

P.O. Box 27622
Richmond, VA 23261
United States

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