Mass Incarceration and the Racial Wealth Gap in America

Hazel Puchalsky

ECON 3698

Section 1: Introduction

Today in America there remains a large gap in wealth between white and black families; in 2016 the median white family had $65,000 in wealth compared to $39,500 for the median black family (Chetty et al., 2019). A number of causes have been linked to this gap including differences in generational wealth and inheritance, lower levels of education among blacks, housing segregation through redlining, and discrimination in employment (Hammond et al., 2020). The predicted steady-state gap in black-white wealth is 19.2 percentiles, meaning that further policy intervention will be necessary to close the gap (Chetty et al, 2019). In this paper, I will explore the effect of criminal justice legislation on the racial wealth gap. It should be noted that I will be focusing on the gap between non-hispanic black and non-hispanic white Americans, for which there is substantial data.

It has been suggested by economists including Chetty et al. (2019) and Dacass (2019) that a main driver of the black-white gap is father absenteeism, which affects the earnings of black boys in particular. For children born to parents with the same income, black and white women work the same and earn the same wages. However, black men have 7% lower wages and work an average of nine fewer hours each week than white men (Chetty et al, 2019). The black-white wealth gap is entirely driven by the difference between black and white men. Therefore, it is necessary to close the gap in male wealth in order to close the racial wealth gap overall. Out of over twenty factors contributing to the wealth gap between black and white men, the presence of black fathers was determined to be the most predictive factor of smaller intergenerational wealth gaps (Chetty et al., 2019). A large driver of black father absenteeism, particularly in the 1980s and 1990s, was mass incarceration, which targeted poor black men living in urban areas. According to research by Dacass (2019) between 1991 and 2007 there was a 79% increase in parental incarceration in the United States and an 80% increase in children with incarcerated parents. Tough-on-crime policies like the “Three-Strikes and You’re Out” laws contributed to this rise in incarceration, which targeted black men with low levels of education in particular. As will be discussed further, the impact of incarceration on individual and community wealth had far reaching and negative consequences for the future wealth of these already disadvantaged communities. In this paper, I will discuss the “Three-Strikes and You’re Out” laws specifically, including their role in increasing incarceration, and the impact they had on the racial wealth gap in the United States.

This paper will examine the effect of the three-strikes laws on the wealth-building abilities of black communities in America. By tying data focused on discrimination within the criminal justice system to data on incarceration and lower wealth, I will show how tough-on-crime laws have led to lower levels of wealth for blacks in the United States. By examining this connection, policy makers can better allocate funding to programs which will close the racial wealth gap, rather than widening it, and give black children in America more opportunity, leading to less inequality.

Section 2 will explain the policy and its racial impacts in greater detail. Sections 3 and 4 will connect high incarceration rates to the decreased abilities for incarcerees and their communities to build wealth. In section 5 data from Chetty et al., the Bureau of Judicial Statistics, and Zaw et al. will be presented in order to display the connection between hard on crime laws and the racial wealth gap. Section 6 will conclude.

Section 2: The “Three-Strikes and You’re Out” Laws

The “Three-Strikes and You’re Out” laws, or simply ‘three-strikes laws’ were passed by twenty-five states and the federal government between 1993 and 1996. As part of Clinton’s 1994 Crime Bill, violent offenders with two previous convictions, even nonviolent convictions, automatically received a mandatory life sentence. This policy was not eliminated at the federal level until Obama’s Fair Sentencing Act in 2010 (Hammond et al., 2020). There was significant variation in policy specifications and enforcement throughout the twenty-five states. In many states, the statutes were defined so narrowly that this legislation was rarely enforced. However, in California, Georgia, and Florida, three-strikes laws were heavily used. For example, in California, someone could receive a twenty-five year sentence for three nonviolent offenses, such as burglary, even if they had not been incarcerated for the first two offenses. States’ policies varied in what mandated a strike, how many strikes were needed before an offender was sentenced to twenty-five years, and whether parole was offered. However, all three-strikes laws were meant to increase the length of imprisonment for violent crimes and expand the crimes that could trigger longer sentences. The result of this legislation was to increase rates of incarceration; in California, Georgia, and Florida, the probability of receiving a twenty-five year sentence rose significantly after the passage of three-strikes legislation (Dacass, 2019).

This legislation impacted black men more than white men due to discrimination and heigtened policing of black, urban communities. Sociologist Loic Wacquant (2010) argues that ‘hyperincarceration’ is a better term than mass incarceration, because tough-on-crime legislation specifically targeted young, black men living in poor, urban areas. According to research by Petit and Gutierezz (2018), black men ages 20-40 are seven times more likely to have a felony conviction than white men of the same age. More specifically, for black men born in the late 1970s, for whom the three-strikes laws had the strongest effects, twenty-five percent had been incarcerated by the age of thirty. For black men without a high school diploma, sixty percent had spent at least a year in prison by the same age.  Because incarceration has negative impacts on wealth-building, targeted ‘hyperincarceration’ of low-income, black men in America worked to widen the racial wealth gap through legislation like the three-strikes laws.

Section 3: Effects on the Incarcerated

        Incarceration can affect a person’s ability to build wealth in a number of ways. These may include increased debts, loss of work experience, loss of income, and other indirect effects. It has been estimated that incarcerated individuals hold an average of $42,000 less in wealth than never incarcerated individuals (Sykes and Maroto, 2016). Since those with less wealth are more likely to be incarcerated, this number may be skewed (Zaw et al., 2016). This skew comes about because higher levels of incarceration among individuals with lower wealth, compared to low levels of incarceration for those with high wealth will segregate these two groups. This leads to high correlation between low wealth and incarceration, but does not necessarily point to incarceration as the main driver of this low wealth. However, trends of low wealth among incarcerated individuals also shows that there exists a positive feedback loop between low levels of wealth, and incarceration’s negative impacts on the ability to build wealth. Many of these effects are made worse by longer sentences, which is why the three-strikes laws, by increasing sentence lengths, affected wealth-building abilities so heavily.

Low wealth, which is already more prevalent in black communities, increases one’s chances of incarceration. This occurs because those with less wealth face greater barriers to quality education, particularly at the secondary level, and are unlikely to have the financial stability to pay for quality lawyers or post bail upon arrest (Pettit and Gutierrez, 2018). These  factors lead to increased length of incarceration through less favorable outcomes in court, and the added length of one’s bail time, which can last for years.

        Interaction with the criminal justice system, which is higher for black men, increases debt through the cost of court fees, legal debt, the cost of bail, and other pre- and post-conviction fines. These are made worse by the fact that the offender’s ability to pay is not factored in. Inability to pay a legal fine can also lead to additional fines, seizure of assets, and even additional jail time. Moreover, time incarcerated, in which individuals cannot work, means they are unable to pay off other bills and debts, like mortgages and car loans. This in turn affects an individual’s credit, making it more difficult for them to build wealth after their release (Sykes and Maroto, 2016). 

        Former incarcerees face stigmatization in the credit market, as they are viewed as less trustworthy and stable. Incarceration makes it more difficult to obtain a loan in the future, leading to gaps in homeownership and wealth between incarcerated and never incarcerated individuals. The likelihood of owning a home decreased by 28% after incarceration, which compounds already low wealth for undereducated black men, who are most likely to be imprisoned. Moreover, in states with increased levels of incarceration, there are larger gaps in black-white homeownership, leading to generational wealth disparities (Sykes and Maroto, 2016).

        Longer sentences are linked to losses in income, leading to increased strain on an incarceree’s financial stability. They also lead to a loss of occupational experience. If an individual is sentenced under the three-strikes laws, they can expect to be incarcerated for twenty-five years. If and when they are released and reenter the workforce, they are likely to encounter an entirely different labor market, in which they lack the skills to succeed. For example, if a former incarceree looked for a job today, they would have to navigate the internet, the gig economy, and the rise of working remotely, all of which were rare or nonexistent when they last worked. Former incarcerees also face significant discrimination from employers, especially black incarcerees. Research by Pager (2003) shows that for men with an incarceration record, employers are twice as likely not to offer a black candidate a call back as a white candidate. In fact, the chances of a call back were slightly higher for white males with an incarceration record than black males without (Zaw et al., 2016). Black males who have been incarcerated face high barriers to reentering the labor market, leading to low rates of employment, and long periods of unemployment.

Strained finances may affect a former incarceree’s family stability and health, which can have indirect, negative impacts on their ability to build wealth. Incarceration increases the likelihood of separation from a partner, divorce, and having children with multiple partners (Sykes and Maroto, 2016.). All of these incur costs, and lead to patterns of instability in one’s personal life, which can have direct effects on their ability to build wealth. For example, a married couple with two incomes has a better chance of buying a home and making other wealth-building investments than an individual.

        Those who have been incarcerated also face heightened health risks, which can be costly, particularly for unemployed individuals without health insurance or stable finances. According to research by Sykes and Maroto (2016), inmates have higher rates of diseases and psychological problems than the outside population, which may lead to long-lasting health effects after release. Incarceration is associated with increased morbidity, stress, risk of infectious disease, and other long-term health problems (Sykes and Maroto, 2016). This affects one’s wealth-building potential because health complications may impede a person’s ability to work and be productive. As well, shorter life spans equate to less time to build wealth.

        Spending time behind bars also decreases trust in the legal system and other institutions, particularly for groups who feel unfairly targeted. This leads to lower political engagement and heightened distrust in the law. An estimated 13% of black men are unable to vote because of a felony conviction, and voting turnout for former incarcerees is especially low (Pettit and Gutierrez, 2018). Such disenfranchisement leads to underrepresentation of this group in policy making and future legislation. Decreased trust in the law may lead to higher crime rates, and further incarceration.

        All of these effects lead to economic insecurity and lack of self-sufficiency, which translate into low levels of wealth. It can also be costly to society as a whole, since financially unstable individuals may turn to welfare programs after long periods of unemployment. The United States spent $7 billion on corrections in 1980 and over $70 billion on corrections in 2007 (Wacquant, 2010). Increasingly expensive corrections systems strain society as a whole, especially when one considers the other possible avenues of spending, such as educational support, programs to assist homeownership, and other programs to close the racial wealth gap.

Section 4: Effects on Community and Family

        Even for those who have never been incarcerated, higher rates of imprisonment and criminal justice interaction have negative effects on wealth building abilities. The absence of a family member increases the financial burden of partners, parents and children, diminishes human capital investments for children, and increases police surveillance in affected communities. Research by Sykes and Maroto (2016) shows that household assets are reduced by between 57.3% and 64.3% when a member is incarcerated. These effects are more prevalent for black women, who have an average of two family members incarcerated, compared to white women, who have an average of 0.14 family members incarcerated. In the same vain, one out of four black children can expect to have a parent incarcerated compared to one out of fourteen children overall (Pettit and Gutierrez, 2018).

        Incarceration of a family member, especially a romantic partner, adds strain to a family's income by increasing their debts, and is associated with lower levels of employment. According to research by Sykes and Maroto (2016), employment rates are lower for those with an incarcerated family member, and for blacks compared to whites. For those with an incarcerated member, white families had employment rates of 64% in 1996 and 45% in 2011. However, for blacks, family employment rates were 54% in 1996 and 26% in 2011. On the other hand, white families without an incarcerated member had a 82% employment rate in 1996 and a 76% employment rate in 2011. Black families without an incarcerated member had a 70% employment rate in 1996 and a 64% employment rate in 2011. The association between incarceration and unemployment causes heightened strain for partners already living off a single income, and possibly paying their partner’s legal fees. This pressure is made worse by the fact that spousal and joint assets can be seized if conviction fines and court fees go unpaid (Sykes and Maroto, 2016).

        Children with incarcerated parents are affected through losses in human capital investment, less financial support, and worse health outcomes. Seeing a parent arrested, visiting them in prison, and having an absent parent may traumatize children, which can lead to adverse health outcomes (Dacass, 2019). Paternal incarceration increases the risk of infant mortality by 49%, just above the 46% increase in the odds of infant-mortality for maternal smoking, according to Pettit and Gutierrez (2018). Parent-child separation decreases the time that a parent can invest in their child. Activities like reading or playing together, learning life skills from watching a parent, and having their emotional support all contribute to a child’s development, and have consequences on their future grades, behavior, and earnings. Children affected by incarceration were found to have lower test scores in reading and math, more grade retention, and were less likely to complete college. The skills acquired from a parent’s investment in their child’s future are comparable to a firm’s investment in capital. The absence of fathers has greater impacts on boy’s psychological and educational development, since single-mothers have been found to devote greater attention to their daughters, and because boys are more responsive to parental inputs, especially from fathers (Daccass, 2019). Moreover, having a parent incarcerated decreases financial resources available to a child due to lack of a second income and the legal costs which the household may incur. These hindrances to success create generational wealth gaps, which allow racial gaps to persist, perpetuating the cycle between incarceration and lower levels of wealth.

        Parental incarceration also affects stability, especially in housing. Children with a recently incarcerated father are three times more likely to experience homelessness. Parental incarceration increases a child’s likelihood of homelessness by between 94 and 97 percent (Pettit and Gutierrez, 2018). Single mothers are likely to face difficulties in affording housing. This is especially true because of selective mating, which shows that people are more likely to partner with those of similar class rank. Because low levels of wealth are associated with higher levels of incarceration, we can assume that many incarcerees’ partners will also hold low levels of wealth and have less financial security even before their partners are incarcerated. In addition, homelessness is high for these children because the recently incarcerated are discriminated against in the housing market, making it difficult to secure housing, even if funds are available (Zaw et al., 2016). According to Sykes and Maroto (2016), incarceration of a family member is associated with a 86.1% decrease in debt due to difficulty accessing the credit market and lending institutions. Inability to make a down payment on a house or show proof of stable and sufficient income blocks families from making wealth-building investments, like purchasing a home. Lack of such assets opens them up to future financial instability.

        Incarceration can also have negative impacts of the wealth-building abilities of entire communities. Increased arrests in an area tend to increase police surveillance there, which may in turn lead to more arrests. People in communities with high incarceration rates tend to have less trust in the legal system and institutions, which in turn leads to higher crime rates (Pettit and Gutierrez, 2018). This may also have implications for rule of law and property rights, which hinge on well-functioning legal systems and social cohesion to be effective. When these lack, neighborhoods experience increased instability because residents are less likely to cooperate with and follow laws, diminishing public safety (Pettit and Gutierrez, 2018). Moreover, research by Chetty et al. (2019) reveals that the presence of black fathers at the neighborhood level, rather than the family level, is a strong indicator of future success for boys. Individual families living in neighborhoods with high incarceration rates may not have control over the success of their children, as Chetty et al. (2019) found that the presence of one’s own father played a comparatively minimal role in boys' future wealth.

        Research by Nunn and Puga (2010) shows a negative correlation between slave raids in regions of Africa and per capita GDP today. Areas with more people taken in slave raids have lower quality domestic institutions and lower per capita GDP by $2,365, compared to if the country had been untouched by slave raids. These trends in economic growth and institutional stability occur because the removal of significant portions of the population resulted in devastated political institutions and societal frameworks. In comparison, areas with low levels of slave capture were able to develop over the long term, leading to better functioning economies today (Nunn and Puga, 2010). If one compares these trends to the targeted incarceration of low-income, black communities in the United States, the generational impacts on wealth are similar. Removal of major earners creates economic strain on communities through loss of human capital and income, which are likely to last for generations without the intervention of targeted policy.

Section 4: Data

        The following data was retrieved from the Bureau of Judicial Statistics (Bonczar, 2003), as well as research by Chetty et al. (2019) and Zaw et al.(2016). I will present the data from Chetty et el. (2019) in its original form. However, I have adapted the data from the Bureau of Judicial Statistics (Bonczar, 2003), or BJS, and Zaw et al. (2016) to increase clarity and better show trends over time. Through these sources, I will show the connections between increased incarceration of blacks compared to whites, and lower levels of social mobility of blacks compared to whites.

        Zaw et al. (2016) analyzed data from the National Longitudinal Survey of Youth 1979  (NLSY79). The survey interviewed 12,686 men and women ages 14-22 each year until 1994, and biennially after that. The surveyed men and women were stratified by race. Beginning in 1985, respondents were asked to report asset and debt values, which were reported in 2012 dollars. Rates of incarceration were recorded in various ways. In 1980, respondents were asked about crime and sentencing history. Respondents were asked what type of residence they lived in for all years, including if it was a prison or jail. Finally, from 2004 onward, incarceration was listed as a “Reason for Non-Interview.” From this, researchers pieced together who had or had not been incarcerated. However, because of the inconsistency in data gathering, there is likely an undercount of incarcerated respondents.

        Figure 1 shows the growth of income, separated by race and incarceration from 1985 to 2000. From these results, the gap in wealth accumulation between the incarcerated and the non-incarcerated is apparent, as well as the gap between black and white wealth accumulation over this period. The growth of white, non incarcerated individuals is most apparent, as it displays the comparatively consistent and rising growth of this group.

        Figure 2 shows the likelihood of male incarceration between black and white respondents of each decile of the wealth distribution for the 1986-1990 and 1986-2012 time periods, respectively. Blacks had higher likelihoods of incarceration at nearly every decile, except the top wealth bracket, where they intersected with whites. Also, incarceration rates were higher during the 1986-2012 period; this further supports that tough-on-crime policies, such as the three-strikes bill, increased incarceration rates.

I also use data gathered by the Bureau of Judicial Statistics (Bonczar, 2003), a statistical agency of the US Department of Justice. In a report published by BJS and written by Thomas Bonczar (2003), data based on demographic models aiming to find the prevalence of incarceration in the US population was shown. Bonczar analyzed the data based on race, age, gender, and year of incarceration. This data is limited in that it was published in 2003, a few years before U.S. incarceration rates peaked in 2008, and before the three-strikes laws were repealed on the federal level in 2010. Therefore, it does not show the entirety of this policy's effect on incarceration. I have adapted his analysis to better show trends over time.

Figure 3 shows the number of adult males incarcerated in state and federal prisons between 1974 and 2001. As the graph shows, the number of prisoners rose for both blacks and whites, but rose at a faster rate for blacks, particularly in the 1990s. The graph shows a convergence in the number of black and white incarcerees, which points to higher rates of black incarceration than white.

In figure 4, the differences in the percentage of black and white males incarcerated is shown for the same period. The graph shows increases in incarceration for both racial groups, but much faster increases for black males. Incarceration rates among black men rose quickly beginning in the mid-1980s and continuing through the 1990s. While the three-strikes laws, which were passed between 1993 and 1996, could not have caused the initial increase in black incarceration, they may have contributed to its continued incline. More research is needed before this specification can be made, since the BJS data does not separate by reason for incarceration nor the state of incarceration.

Figure 5 displays the lifetime chances of first-time incarceration for black and white men between 1974 and 2001. This graph shows the increased chances of incarceration for black men, and sharp increases for black men starting in the mid-1980s. Comparatively, white men experience a slow and less drastic rise in incarceration over the same time period. This results in an increased gap in one’s chances of being incarcerated based on race between 1974 and 2001.

Chetty et al. (2019) examined intergenerational wealth gaps between racial groups using various sources of data. Their analysis includes data from the Census 2000 and 2010 short forms, which cover the entire US population, as well as federal tax returns in 1989, 1994, 1995, and 1998-2015. They also used data from the 2010 long form of the Census and the American Community Survey from 2005-2015. The long form of the census is a stratified random sample which covers one in six US households. The ACS is also a stratified random sample which covers about 2.5% of US households each year. The researchers examined children born from 1978-1983 specifically. All of the children in the data set were born in the U.S. or authorized immigrants who came to the US as children, and their parents were US citizens or authorized immigrants. A child’s ‘parent’ was the adult who first claimed them as a dependent on their tax forms. The children in this data set were less likely to be incarcerated under the three-strikes law, but may have parents incarcerated under it. The main factor examined using this data will be father absenteeism. By examining father absenteeism, one can explore the effects of heightened paternal incarceration on children’s ability to build wealth.

Figure 6 compares rates of poverty and rates of father presence in black and white neighborhoods. An area of low poverty is defined as one with less than 10% of residents below the poverty line, and an area of high father presence is one where more than half of fathers are present. The graph shows that the majority of black children live in neighborhoods with low father presence and high poverty rates, compared to the majority of white children, who live in low poverty areas with high rates of father presence. Father presence has major effects on intergenerational poverty, according to research by Chetty et al. (2019). Higher rates of father absence among black children also point to increased incarceration for these communities.

Figure 6

The data presented shows higher rates of incarceration for black men compared to white men, and lower rates of wealth for black men compared to white men. However, there is a lack of data which directly ties these trends to the three-strikes laws. In addition, data which compares California, Georgia, and Florida- the states where three-strikes laws were implemented most heavily- with states where the three-strikes law was never implemented, could further prove my argument that this policy increased the racial wealth gap. As well, further data which examines incarceration rates for the full life of the policy would better prove that the three-strikes laws specifically led to higher incarceration rates for black men, and an increased racial wealth gap.

Section 5: Conclusion

        The data displayed, as well as the trends connecting incarceration to lower levels of wealth, show a correlation between tough-on-crime legislation and an increased black-white wealth gap. Incarceration affects an individual's ability to build wealth through lost experience, lost income, and increased debts. For those with incarcerated family members, wealth-building is often stifled by increased economic strain through loss of a second income, increased instability, and loss in human capital development for children. Data analysis shows that non-incarcerated men and white men had the highest increases in wealth during the last few decades of the twentieth century, when the three-strikes legislation was implemented (Zaw et al., 2016). In comparison, black men and incarcerated men faced the most barriers to wealth building under this policy. However, until further data is collected, there is not strong enough evidence to show that the three-strikes laws directly caused decreased accumulation of wealth for blacks in the United States. Despite this, the correlation between increased incarceration and larger gaps in wealth between blacks and whites, especially considering the increased likelihood of incarceration that blacks face, should alarm policy makers and researchers.

        Future research should examine policies to close the wealth gap. Chetty et al. (2019) have suggested male mentorship programs to assist black boys. In addition to this, economists should look into targeted investment into education and human capital development. As discussed earlier, a main effect of father absenteeism is a decrease in human capital development. Funding for early childhood education programs, rather than police surveillance, may reverse some of the generational effects of lost human capital. Other possible programs, such as those aimed at increasing homeownership, may work to increase wealth-building assets for black Americans.

        Given the current research connecting criminal justice interaction with lower levels of wealth in black communities, policy makers should consider decreasing police presence and reallocating funding to programs which may close the racial wealth gap.

References

Chetty, Raj et al. 2019. “Race and Economic Opportunity in the United States: An Intergenerational Perspective.”  The Quarterly Journal of Economics 135, no. 2 (May 2020): 711-783.

Bonczar, Thomas P. Bureau of Judicial Statistics-Prevalence of Imprisonment in US 1974-2001.

Dacass, Tennecia. 2019. "Essays on the Economics of Crime and Occupational Licensing." http://libproxy.temple.edu/login?url=https://www-proquest-com.libproxy.temple.edu/dissertations-theses/essays-on-economics-crime-occupational-licensing/docview/2472983115/se-2?accountid=14270.

Hammond, Janice H., A. Kamau Massey. 2020. “African American Inequality in the United States.” Harvard Business School.  N9-620-046. p. 1-33

Nathan Nunn and Diego Puga. 2012. "Ruggedness: The Blessing of Bad Geography in Africa." The Review of Economics and Statistics 94, no.1 (February 2012): 20-36. doi:10.1162/REST_a_00161. https://www.jstor.org/stable/41349158.                        

Pager, D. (2003). “The Mark of a Criminal Record.” American Journal of Sociology 108, no. 5 (March 2003), 937–975.

Pettit, Becky and Carmen Gutierrez. 2018. "Mass Incarceration and Racial Inequality." American Journal of Economics and Sociology 77, no. 3-4 (May 2018): 1153-1182. http://libproxy.temple.edu/login?url=https://www-proquest-com.libproxy.temple.edu/scholarly-journals/mass-incarceration-racial-inequality/docview/2166697059/se-2?accountid=14270.

Sykes, Bryan and Maroto, Michelle. “A Wealth of Inequalities: Mass Incarceration, Employment, and Racial Disparities in the U.S. Household Wealth, 1996 to 2011.” RSF: The Russell Sage Foundation Journal of the Social Sciences 2, no.6 (October 2016): 129-152. https://www.jstor.org/stable/10.7758/rsf.2016.2.6.07 

Wacquant, Loic. 2010. “Class and Hyperincarcation in Revanchist America.” Journal of the American Academy of Arts and Sciences (Summer 2010): 78-91.

Zaw, Khaing, Hamilton, Darrick, and Darity, William. 2016. “Race, Wealth and Incarceration: Results from the National Longitudinal Survey of Youth.” Race and Social Problems 8, no.1 (March 2016): 103-115.