8730 Georgia Ave, Suite 400
Silver Spring, MD 20910


Providing news and analysis on business, economics, and drug prohibition
Issue 3: Spring 2006
How does drug prohibition effect your business?

#1: You have fewer customers because the war on drugs reduces purchasing power.

Over the last twenty years, more than six million Americans received felony convictions for possessing drugs or selling them.  Tens of millions of others have criminal records for arrests or misdemeanor convictions.  Years later, many of these people are drug free, but still struggle to find a job, especially with a regular paycheck.  Ex-felons are rarely hired for responsible jobs – typically they are under-employed, if employed at all.  They can’t buy what you want to sell.

From 1973 to 2000, the rate of incarceration has quadrupled in America, giving the United States the highest incarceration rate in the world.  Overall, there are approximately 13 million ex-felons in the United States, representing 7 percent of the adult population and 12 percent of the male population.  According to a 2002 cover story from The Economist, while the incarceration rate for narcotics offenses were 15 for every 100,000 adults in 1980, by 1996, the rate had increased to 148 per 100,000.1  Due to the high number of prisoners and free ex-felons in the United States, it is mistaken to assume that their role as consumers will have no effect on your business.

Felony Handicap for Hiring

After release, men and women with felony convictions are faced with daunting barriers that hinder their ability to find steady employment at a living wage level.  Ex-offenders face the stigma of criminal conviction upon their re-entry: employers rarely want to hire ex-offenders because of their pasts and believe that they are not trustworthy.  A 2005 study conducted by Princeton University sociologists Bruce Western and Devah Pager found that employers treat job applicants differently depending on their race and criminal background.  In this study, a group of black and white testers were given equivalent resumes and interviewed with 350 employers in New York City.  The groups were given fictional backgrounds, some with an 18-month incarceration, some without, to determine if employers favored one group or another.  The results indicated that having a criminal record did significantly impact an employer’s interest in an applicant, as measured by callbacks and job offers.  More specifically, there was a 6.1 percent decrease in callbacks and job offers for whites and an 11.2 percent decrease for blacks.2

In a similar study published in 2003, Dr. Pager found more evidence that a criminal record has a negative effect on an employer’s hiring decisions.  This study, which used two pairs of white and black men who applied for the same positions with and without an 18-month incarceration, showed that applicants who had criminal records were significantly less likely to be hired than those who did not.  More specifically, the results of this study show that whites with no criminal record had a 34 percent chance for a callback from an employer, while it was halved to 17 percent for whites with a criminal record.  Similarly, the blacks without a criminal record had a 14 percent chance for a callback, while those with a record had a 5 percent chance.3  Clearly, most employers strongly favor job applicants with clean records over ex-inmates.

Additional Economic Handicaps

Aside from employers’ hiring practices, there are other obstacles preventing ex-felons from getting steady employment.  A journal article from Urban Institute social scientists Harry Holzer, Steven Raphael, and Michael Stoll concluded that out of all the stigmatized groups, employers are the least willing to hire ex-offenders, favoring welfare recipients, GED holders, and applicants with spotty work histories over them.  Generally, ex-felons are limited by low wages, lack of benefits, and lack of access to government aid such as Medicaid and Earned Income Tax Credit.4  For instance, according to the Ex-Offender Employability Task Force of the Illinois Workforce Investment Board, ex-felons are excluded from full access to public aid, food stamps, public or affordable housing, Supplemental Security Income, and student financial aid.5  Lastly, employers are discouraged from hiring people with criminal records because of liability; in 2001, it was estimated that employers had lost 72 percent of negligent hiring cases, representing an average of $1.6 million per settlement in damages coming out of employers’ pockets.6

Inadequate Remedy

In 1996, Congress made an effort to alleviate ex-convicts’ economic plight by introducing the Working Opportunity Tax Credit (WOTC), a tax credit that gives employers the incentive to hire eight targeted groups of job seekers, including ex-felons.  However, upon further investigation into the specifics of this tax break, one would notice that this credit only applies to ex-felons who meet the following requirements:  “(1) be convicted of a felony under State or Federal law; (2) be a member of an economically disadvantaged family, defined as having an annualized family income of 70% or less of the lower living standard income level or LLSIL; and (3) have a hiring date within one year of release from prison or conviction.”7  Unfortunately, ex-offenders without families as well as ex-inmates who have been for more than a year after their release are not qualified for this tax break, making it even more difficult for them to find jobs.

Licensing Barriers for Ex-Felons

Federal and state restrictions on occupation licensures are another barrier to stable employment for ex-felons.  In general, ex-offenders with felony convictions are barred from entering child care services, certain health services, private security firms, real estate, and most law enforcement and criminal justice positions.8  For example, a study conducted by the DePaul Law School in 2000 found that the state of Illinois put restrictions on 57 of the 98 occupations that require state licensure for applicants with criminal records or even misdemeanors.9  Because of these limitations, ex-offenders are forced to take jobs that offer little financial security and limited opportunity.

In 2002, Bruce Western of Princeton University conducted another analysis to determine the impact of incarceration on ex-offenders’ wages.  Using survey data from the National Longitudinal Survey of Youth from 1983-1999 of young male prisoners, the sociologist discovered evidence that showed that incarceration reduced ex-inmates’ wages by 10 to 20 percent as compared to what they would receive if they hadn’t been imprisoned at all.  This statistic is unsurprising given the social stigma of conviction and the fact that incarceration time diminishes job skills.  However, upon further investigation of ex-inmates’ hourly wages in the sixteen year time frame, Western found that incarceration reduces wage growth by 30 percent, as compared to the normal wage growth experienced by males in their twenties and thirties who have never been incarcerated.10  Dr. Western’s analysis clearly demonstrates that incarceration has crippling consequences that go far beyond finding the first job.

Ex-felons face numerous restrictions on their ability to find steady work and a reasonable income.  While some are able to overcome these obstacles and fully participate in society, the majority does not; in an early 90s California study, only 21 percent of the state’s parolees were working full-time.11  Consequently, receiving restrictive or sometimes ineffective forms of aid from the government and being socially branded as ex-felons, many individuals struggle to make a decent living or end up in jail again after resorting to crime as a means to survive.  Either way, this consumer group will most likely have very limited spending ability.



1.“The Stigma that Never Fades,” The Economist, August 10, 2002.

2. Devah Pager and Bruce Western, “Race at Work:  Race and Criminal Record in the NYC Job Market.”  December 9, 2005.

3. Devah Pager, “The Mark of a Criminal Record.”  American Journal of Sociology 108 (March 2003): 937-75.

4. Harry Holzer, Steven Raphael, and Michael Stoll, “Can Employers Play a More Positive Role in Prisoner Reentry?”  Working Discussion Paper for the Urban Institute’s Reentry Roundtable, March 20-21, 2002.

5. Paul Street, “The Vicious Circle:  Race, Prison, Jobs, and Community in Chicago, Illinois and the Nation,” Chicago Urban League, 2002.

6. Jeremy Travis, “From Prison to Work:  The Employment Dimensions of Prisoner Reentry,” Urban Institute Research Report, October 1, 2004.

7. Linda Levine, “The Work Opportunity Tax Credit (WOTC) and the Welfare-to-Work (WtW) Tax Credit,” Congressional Research Service Report for Congress updated January 27, 2006.

8. Holzer et. al.

9. Street.

10. Bruce Western, “The Impact of Incarceration on Wage Mobility and Inequality,” American Sociological Review 67 (August 2002): 526-546.

11. Street.





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