Higher minimum wages and youth crime

Does a higher minimum wage reduce crime? The White House Council of Economic Advisors thinks so. However, from the perspective of basic economics, it is an open question. On the one hand, we might expect higher minimum wages to increase income for low-income workers. That increases the opportunity costs of property crime - if these low-income workers engage in property crime and are caught, they give up more income as a result (because of jail time, etc.). On the other hand, the evidence strongly suggests that higher minimum wages reduce employment (see my latest post on this topic here). So, even if low-income workers earn more, fewer of them have jobs. Those that are made unemployed have greater incentives to engage in property crime.

A recent NBER Working Paper (ungated version here) by Zachary Fone (University of New Hampshire), Joseph Sabia (San Diego State University), and Resul Cesur (University of Connecticut) addresses this open question. They use data from the U.S. crime data and data from the National Longitudinal Study of Youth over the period 1998 to 2016, and data on national, state, and local minimum wages. Over that period, there were:

...3 Federal minimum wage increases, 217 state minimum wage increases, 77 local minimum wage increases, and 116 living wage ordinances enacted.

So, there is more than enough variation in the data to identify the relationships between minimum wage increases and crime. Fone et al. focus on youth crime, which is sensible because youths are more likely to be affected by higher minimum wages (either positively or negatively). They also compare the effects for those aged 16-19 years and 20-24 years with those aged over 25 years. They find that:

...minimum wage increases enacted from 1998 to 2016 led to increases in property crime for those between the ages of 16-to-24, with an estimated elasticity of 0.2. This finding is robust to the inclusion of controls for state-specific time trends, survive falsification tests on policy leads, and persist for workers who earn wages such that minimum wage changes bind. Increases in property crime appear to be driven by adverse employment and hours effects of minimum wages. We find little evidence that minimum wage increases affect violent or drug crimes.

The elasticity of 0.2 means that a 10% increase in the minimum wage is associated with a 2% increase in property crime. Interestingly, and importantly, the effects are statistically significant for younger people (aged 16-19 or 20-24), but not statistically significant for those aged over 25 years. This can provide some confidence that what they are finding is related to the minimum wage changes, and not to some underlying overall crime trends (although underlying youth crime trends might still be a problem), because if it was driven by underlying trends there would be a significant effect for the 25+ age group as well. They also find that living wage provisions (which are usually larger than minimum wages, but affect only a subset of those working for low wages) increase property crime by 9.1%.

Of course, this paper is far from the last word on the effects of minimum wages on crime, and is inconsistent with previous evidence (including a paper I blogged about last year on minimum wages, earned income tax credits and female recidivism). However, it does show that we need to take more than just the standard welfare effects of the minimum wage into account when evaluating the costs and benefits of a higher minimum wage.

Read more:

• The minimum wage, EITCs, and criminal recidivism