Yellen’s problem with US felons

My Comments: We are a nation of approximately 316 million people, of which roughly 30% are “youth dependent” and 20% are “elderly dependent”. This leads me to assume that roughly half of us are capable of employment of some kind.

The next assumption is that if the employable number of people is about 158 million, and of those, 13 million have a criminal record, about 8% of the workforce has a red flag somewhere in the system.

Some of these people have limited education and work related skills. A common observation of prison populations is that few of them know how to walk and chew gum at the same time. That’s probably unfair, but I didn’t put them there.

All this means that if you are going to work toward keeping the level of unemployment down and limiting the amount of money thrown at people not now in the work force, we might be better off spending money on the development of employable skills and reducing the penalty for smoking pot. Unless you like building new prisons and make money by managing them.

Edward Luce | February 22, 2015

Some 13m Americans with a criminal record weigh on unemployment rate

When we think of crowded US prisons, we do not usually turn to economists — still less central bankers. Yet America’s steep rate of incarceration must be high on the list of what keeps Janet Yellen up at night.

Markets will be waiting to pounce on the US Federal Reserve chair’s slightest nuance in her congressional testimony this week. Will the central bank lift rates in June or September? The key to her thinking lies in the US labour force participation rate. If it improves, the Fed can keep rates at zero without fear of wage inflation. If it stays put, Ms Yellen may have to end the party far sooner.

Much has been made of the sharp fall in US unemployment in the past few months; it is now at just 5.7 per cent. But if the same number of Americans were active in the labour force today as at the start of the recession in 2007, the jobless rate would be almost 10 per cent. The labour force participation rate — the basis for calculating joblessness — has fallen to 62.8 per cent of adults today from a peak of 67.3 per in 2000.

Some of this fall is the result of changing demographics. The baby boomers are starting to retire. Some of it comes from the expansion of the US disability benefit, which pays millions more people to stay out of work than it used to.

What is often overlooked, however, is the starring role of the US criminal justice system. Critics of America’s willingness to hand out criminal records think of it as a social blight. It is also a crime against the economy. The numbers are staggering. At 2.3m, the US prison population is the highest in the world — close to the combined numbers of people locked up by China and Russia, and more than 10 times those of France, Germany and the UK combined. Think of it as a democratic gulag. It is almost double where it was in 1991. That means the US has millions more ex-convicts than it used to, the large majority of whom are routinely screened out by employers.

But the taint of a criminal past affects a far larger pool of people than felons, who number about 13m. Almost one in three adult Americans, about 75m people, are included on the Federal Bureau of Investigation’s criminal database. Details for roughly half those names are incomplete. To enter the FBI’s list, you need not have been convicted in a court — merely arrested at one time or another.

Most employers carry out background searches on job applicants and screen out those with criminal records. Among those whose applications would instantly be deleted is Bill Gates, the founder of Microsoft, because of a 1977 arrest for a traffic violation. So too would that of George Clooney. He was arrested in 2012 for demonstrating outside the Sudanese embassy in Washington.

During the 1990s the US achieved close to full employment. This coincided with a shift to zero tolerance policing. About half of US states still have a “three strikes and you’re out” automatic jailing rule. But for most employers one strike is enough — and there is a good chance it was misreported. Persuading the FBI to expurgate your record, or amend it, is virtually impossible. That bouncing cheque that you wrote to your landlord in 1997 will probably show up as a “misdemeanour” until your dying day. Names are kept on the FBI’s database for 110 years. Among the
millions defined by labour statistics as “discouraged”, or who have stopped looking for work altogether, a high share had their discouragement thrust upon them.

What can Ms Yellen do about it? Not much directly. A year ago she tried to highlight the stigma of long-term unemployment — employers’ reluctance to hire people who had been out of work a long time. Two of those she cited had criminal records. She was pilloried for having failed to disclose that detail — yet her examples were on the money. She could also demand that questions about criminal records be included in the monthly labour force survey, and in surveys of employer attitudes. The US government gathers a lot of detail about households. It should add criminal records to its questionnaires.

She ought also to give a pat on the back to the Ban the Box movement, which persuades employers to remove questions about criminal records from screening forms. The information is disclosed at a later stage in the interview process, by which time companies are likelier to see your plus points. Ban the Box has been adopted by a few big companies, including Walmart, the retailer, which last week announced it would raise hourly wages. Ms Yellen should also give a thumbs up to the Redeem Act — a bill sponsored by Cory Booker, the Democratic senator, and Rand Paul, the Republican senator. The law would allow Americans to expunge non-violent crimes from the records. She might also try to shame the FBI into maintaining accurate data.

None of these steps alone would expand the US labour market in time to alter the Fed’s calculations. But together they would help lower a big structural barrier to US growth. Ending the three strikes rule would have a more lasting impact. It would also make America fairer. Ms Yellen has the biggest economic bully pulpit in the world. She should spell out the hidden costs of America’s tendency to criminalise.