Economic Impacts of Prison Growth

Suzanne M. Kirchhoff
Analyst in Industrial Organization and Business

The U.S. corrections system has gone through an unprecedented expansion during the last few decades, with a more than 400% jump in the prison population and a corresponding boom in prison construction. At the end of 2008, 2.3 million adults were in state, local, or federal custody, with another 5.1 million on probation or parole. Of that total, 9% were in federal custody. Globally, the United States has 5% of the world's population but 25% of its prisoners. Prison growth has been fueled by tough drug enforcement, stringent sentencing laws, and high rates of recidivism—the re-arrest, re-conviction, or re-incarceration of an ex-offender. 

The historic, sustained rise in incarceration has broad implications, not just for the criminal justice system, but for the larger economy. About 770,000 people worked in the corrections sector in 2008. The U.S. Labor Department expects the number of guards, supervisors, and other staff to grow by 9% between 2008 and 2018, while the number of probation and parole officers is to increase by 16%. In addition to those working directly in institutions, many more jobs are tied to a multi-billion dollar private industry that constructs, finances, equips, and provides health care, education, food, rehabilitation and other services to prisons and jails. By comparison, in 2008 there were 880,000 workers in the entire U.S. auto manufacturing sector. Private prison companies have bounced back from financial troubles in the late 1990s, buoyed in part by growing federal contracts. Nearly all new U.S. prisons opened from 2000-2005 were private. Private prisons housed 8% of U.S. inmates in 2008, including more than 16% of federal prisoners. 

The growth of the corrections sector has other impacts. A number of rural areas have chosen to tie their economies to prisons, viewing the institutions as recession-proof development engines. Though many local officials cite benefits, broader research suggests that prisons may not generate the nature and scale of benefits municipalities anticipate or may even slow growth in some localities. Record incarceration rates can have longer-term economic impacts by contributing to increased income inequality and more concentrated poverty. The problems are exacerbated by the fact that African Americans and Hispanics are far more likely than whites to be incarcerated. The large prison population also may be affecting distribution of federal dollars. The U.S. Census counts individuals where they reside. Some regions may record a significant population increase due to new prisons, meaning they garner more aid under federal population-based formulas. 

The corrections sector is in stress as states seek to reduce prison populations and rein in costs. The efforts have been underway for several years, but have intensified as the recession that began at the end of 2007 has wrought havoc on state budgets. At least 26 states cut corrections spending for FY2010. California Gov. Arnold Schwarzenegger has suggested amending that state's constitution to ensure that spending on prisons cannot exceed spending on higher education. Arizona is preparing to sell prison facilities to private firms. It remains to be seen whether private companies will prosper from state efforts, or incur losses if inmate populations level out or decline. Congress is involved in the debate via federal contracts with private prisons, proposed legislation to create a task force on the prison system, increased funding to reduce recidivism, a proposed bill to allow collective bargaining for public sector correctional workers, proposals to alter rules for the 2010 Census count, and rural development efforts. Legislation introduced in the 111th Congress includes S. 2772, S. 714, S. 1611, H.R. 4080, H.R. 413, and H.R. 2450. This report will not be updated.


Date of Report: April 13, 2010
Number of Pages: 39
Order Number: R41177
Price: $29.95

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