The Washington PostDemocracy Dies in Darkness

Mass incarceration is making the Federal Reserve’s job harder

What's jamming the Fed's frequencies? It is probably a combination of factors: a severe financial crisis that forced many people into an early retirement, an aging population that has fewer people working generally, an increasingly automated economy that has less need for moderately skilled workers or something else entirely.

One likely source of interference is the increasing number of people who have been to prison or who have been convicted of a felony. This surprisingly large group might have difficulty finding work even in a good job market, making it harder for the Fed to stimulate the economy back to full strength.

As a result of policies intended to curb violent crime and drug use, more and more people have been arrested, convicted of a felony, or sent to prison in recent decades, especially among black men and men without little education.

Roughly 3 percent of U.S. adults had a felony conviction in 1980, according to unpublished calculations by Sarah Shannon of the University of Georgia, Christopher Uggen of the University of Minnesota and several of their colleagues. Since then, the figure has nearly tripled to 8.4 percent, less than half of whom have been to prison.

That figure represents an increase of about two percentage points from 6.5 percent in 2000. By comparison, the number of adults in the workforce -- either employed or looking for work -- has only fallen by about four percentage points over the same period, from 67 percent to 63 percent. That decline reflects both the aging of the population and the financial crisis.

Many felons in that two-percentage-point group have probably managed to find jobs, and a few would have struggled to find work even without the conviction on their record because they lack the skills they need to earn a living legally or because they are genuinely dangerous people whom employers would be wise to avoid.

But people with any kind of criminal history face a number of obstacles when they look for work. A prison sentence is a lost opportunity to learn useful skills on the job, but even someone with a felony conviction who has never been to prison may face legal barriers to working in all kinds of occupations, from hairdressing to policing. There are also laws intended to prevent discrimination against those who have served their time, but many employers are leery of hiring felons all the same.

"I don't think it's received enough attention by economists," said Steve Davis of the University of Chicago."This is a sobering set of facts and developments that we’re talking about."

Harry Holzer, who served as the Clinton administration's chief labor economist, said the overall effect of convictions on the number of working adults is likely to be modest, but added that the effect on some groups would be more severe.

Fully one third of adult black men have a felony conviction, according to the unpublished estimates. "If you focus on male drop-outs and black men, it's not trivial," Holzer said.

A study published a few years ago by the Center for Economic and Policy Research estimated that in 2008, felony convictions kept just under 1 percent of American adults out of a job, including somewhere around 5 percent of black men and at least 6 percent of men without a high school diploma. These people would have added around $60 billion to the economy had they been working, but the study presented a wide range of results.

Yellen and her colleagues might not be able to help these people get back to work. Employers' aversion to hiring convicts is strong enough that they might have a hard time finding a job even if businesses can't find enough applicants to fill vacancies. In other words, the damage might be done already.

Update, 3:45 p.m.: This study has been updated with data from the Center for Economic and Policy Research. You can read about the results of the Fed's meeting here.