Incarceration and the Economic Fortunes of Urban Neighborhoods

Abstract

New research has identified the consequences of high rates of incarceration on neighborhood crime rates, but few studies have looked beyond crime to examine the collateral effects of incarceration on the social and economic well being of the neighborhoods themselves and their residents. We assess two specific indicia of neighborhood economic well-being, household income and human capital, dimensions that are robust predictors of elevated crime, enforcement and incarceration rates. We decompose incarceration effects by neighborhood racial composition and socio-economic conditions to account for structural disadvantages in labor force and access to wealth that flow from persistent patterns of residential segregation. We use panel methods to examine the effects on incarceration on New York City census tracts over an 11 year period from 1985-1996, a period which saw crime rates rise and fall sharply, and when incarceration rates increased and remained high in concentrated areas throughout the city. We examine whether persistently high incarceration rates erode human capital and depress median household incomes, further intensifying incarceration risks and threatening to create conditions where incarceration and economic disadvantage become endogenous features of certain neighborhoods. We find distinct but overlapping effects for prisons and jails, suggesting that these are parallel processes produced by loosely coupled law enforcement priorities. Incarceration effects are greater for household income than human capital, suggesting a complex relationship between persistent poverty, residential segregation, and incarceration that reinforces a classic poverty trap. Household incomes are lower over time in neighborhoods with higher proportions of African American population, even after controlling for the effects of race on incarceration, but we find no similar effects for Hispanic populations. Spatially targeted policies such as microinvestment and housing development may be needed offset the local embeddedness of poverty and disrupt its connections to incarceration and crime, while education policy and transitional labor market networking can strengthen local human capital.