Do State Minimum Wages Affect the Incarceration Rate?

Because of historically unprecedented increases in the prison population since the late 1970s, the United States has the highest incarceration rate in the world. Using Becker's (1968) framework on crime, this study investigates the causal relationship between incarceration rates and state minimum wages. Our identification strategy consists of a state‐level fixed effects model and Autor and Dorn's (2013) two‐stage least‐squares (2SLS) approach. Using the historical local industry structure, we predict the change in employment shares of manual task‐intensive occupations and use those as an instrument for state minimum wages. The fixed effects and 2SLS estimates suggest that a one‐dollar increase in state minimum wage leads to approximately 12–25 fewer incarcerations per 100,000 state residents. Estimates of the heterogeneous impacts by race and gender indicate that the aggregate impact of state minimum wages is entirely driven by men.