Job Sorting and the Labor Market Effects of a Criminal Record

We examine the effects of a criminal record on labor market outcomes and the mediating role of job sorting using Swedish register data. Prime-age adults with criminal records earn about 30% less than observably similar adults without records and are concentrated in specific employers and occupations. To estimate the causal effect of a criminal record, we use an event study design that compares outcomes for adults charged with an offense for the first time to matched adults who were suspected of a similar offense but not charged. Acquiring a criminal record reduces months employed by 2% and annual earnings by 5%. These negative effects are: twice as large for more serious or subsequent charges, not driven by job displacement or incapacitation, and not mitigated by automatic record expungement, which typically occurs 5 or 10 years after case disposition. We classify firms by their propensity to hire workers with criminal records, holding suspected offense history fixed. A criminal record reduces employment at firms classified as less likely to hire workers with criminal records, increases employment at other firms, and decreases monthly wages across all firm types. Firm propensity to hire workers with criminal records varies substantially — even within industries — and is linked to firm size and managers’ prior exposure to people with records. Leveraging manager moves across small firms, we find that when a firm hires a new manager with greater prior exposure to people with criminal records, it hires more people with records, with no detectable effect on productivity.