Christian Torsell

Economics sophomore

[email protected]

In the 16th century, the Jesuit order was closely identified with what is today known as the “School of Salamanca,” a group of Spanish Catholic intellectuals who revolutionized philosophy, theology, law and, perhaps most significantly, economics. In their pioneering writings, the school’s proto-economists defended markets and private property against intellectual trends that overwhelmingly opposed them, famously denouncing the advocates of artificial “just prices” in favor of natural prices determined by market supply and demand. These, they argued, were the only truly just prices.

In the 21st century, by contrast, it isn’t uncommon to see an article from the Jesuit Social Research Institute like the one I received by email recently, entitled “Minimum Wages Reduce Crime.”

How the mighty have fallen.

There are a host of reasons to doubt the claim made in that article’s title. For the sake of the late Salamancans, I’ll raise a few key objections.

In his article, Bustamante largely relies on a recent study entitled “The Minimum Wage, EITC, and Criminal Recidivism,” writing that paper “finds strong empirical evidence that state minimum wage increases not only benefit workers directly but also reduce crime, thereby further serving the common good.” Increasing the minimum wage, he claims, leads to lower recidivism rates and higher employment in formal labor markets for ex-nonviolent offenders.

This is a curious argument since a minimum wage can only raise the bar for those seeking employment. Unless intervening factors are at play, it’s safe to assume that an employer will only hire someone if the (marginal) productivity contributed by his labor exceeds the (marginal) cost of paying his wage. So when the government raises the minimum wage, it excludes from the market all of the people who don’t have the skills necessary to produce value for an employer at or above the level of the new price floor, thus creating unemployment for less skilled laborers. The workers who suffer the most are the ones with the least access to opportunities for productivity-increasing skill development (e.g. formal education or apprenticeships), namely, the elderly, the poor and the otherwise socially disadvantaged—including ex-offenders.

If released convicts tend to recidivate due to their choosing illegal work in the informal sector over lawful employment, as Bustamante claims, then it’s hard to imagine how raising barriers of entry into legal labor markets could help in any way. As he rightly points out, “The stigma of criminal convictions coupled with gaps in work histories and typically lower levels of educational attainment leave ex-offenders with scant employment prospects,” leaving them especially vulnerable to minimum-wage-induced unemployment.

On the other hand, it could be argued, as in the article Bustamante references, that “if an individual is able to secure a job at the now higher minimum wage, then their opportunity cost of returning to jail has increased, reducing the probability of recidivism.” Maybe this could account for the correlation between an 8 percent minimum wage hike and a 2 percent decline in recidivism that paper’s authors found. But this argument ignores a major cost associated with finding lawful work. Ex-convicts who lack the skills to produce value at or above the level of the new minimum wage face the cost of acquiring those skills, potentially offsetting the increase in the opportunity cost of recidivating caused by the minimum wage. Low-skill ex-offenders can’t wave a magic wand and be granted legal employment at the newly-raised minimum wage rate; they have to demonstrate that they are productive enough to earn such a job, and learning new skills to increase human capital involves costs that may not be present were they to choose work in black or grey markets. It would seem that the correlation the authors found in their study might not demonstrate causation.

Economics involves the unseen as much as the seen, and unintended consequences of policies are often at least as important as intended ones. The Jesuits at Salamanca were well aware of that. Hopefully now, 500 years later, we can return to the example they set.