THE FREE-MARKET MYTH - PENAL JUSTICE AS AN INSTITUTION OF THE US LABOR-MARKET

Comparative economic research contrasts the corporatist welfare states of Europe with the unregulated U.S. labour market to explain low rate s of U. S. unemployment in the 1980s and 1990s. In contrast, we argue that the American state made a large and coercive intervention into th e labour market through the expansion of the penal system. The impact of incarceration on unemployment has two conflicting dynamics. In the short-run, U.S. incarceration markedly lowers conventional unemploymen t measures by removing able-bodied working-age men from labor force co unts. In the long-run, social survey data from the National Longitudin al Study of Youth show that incarceration raises unemployment by reduc ing the job prospects of ex-convicts. Strong U.S. employment performan ce in the 1980s and 1990s has thus depended in part on a high and incr easing incarceration rate.