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Rotman Insights Hub | University of Toronto - Rotman School of Management

Breaking barriers: How low-cost incentives can boost employment for ex-convicts

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Mitchell Hoffman

Ex-convicts often have a difficult time finding work, and unemployment can put them at a greater risk for re-arrest. In response, some U.S. states have implemented “Ban the Box” laws, which prevent employers from systematically eliminating job candidates with a criminal background. Still, unemployment among these workers remains high.

In “Increasing the Demand for Workers with a Criminal Record,” a study published in The Quarterly Journal of Economics, Rotman School of Management professor Mitchell Hoffman and his collaborators address this perennial problem. In collaboration with a privately run nation-wide staffing platform, the researchers tested incentives aimed at motivating employers to hire ex-convicts.

“Many firms seem averse to hiring workers with a criminal background” Hoffman says. “But we don’t really understand why.”

Hoffman says that the results of the study were both “surprising and heartening.” Low-cost incentives, such as offering crime and safety insurance to employers, are actually more effective than expensive (though more common) wage subsidies.

The platform that the researchers collaborated with connects businesses to workers for short-term, entry-level gigs. When a business posts a job, they select certain experience requirements. Then the platform matches workers to the job, which they are offered on a first-come, first-serve basis. There is no application or interview process between the worker and employer. 

To test various incentives, researchers asked businesses to choose whether to allow workers with a criminal background to be hired for their jobs.

Businesses that were not offered incentives were only willing to work with ex-convicts 39 per cent of the time. That number rose to 50 per cent if the platform guaranteed that workers had received good reviews from other employers; 51 per cent when businesses were offered crime and safety insurance; and 60 per cent when employers were guaranteed that workers had not been arrested or convicted in the past year. For one test group, researchers simply informed businesses what percentage of workers on the platform had received a five-star review. This no-cost intervention raised firms’ willingness to work with ex-convicts by seven per cent.

By contrast, employers were only willing to work with ex-convicts 41 per cent of the time when offered a 25 per cent wage subsidy. When the platform offered to pay workers’ entire wage, only 54 per cent of employers signed on.

“Even when workers are essentially free, in terms of wages, a lot of firms are not willing to work with people who have a criminal background,” Hoffman says. “The non-wage subsidy options seem to be much more cost effective.”

Hoffman and his co-authors' findings could make major ripples, not only in business, but in policymaking as well. Currently there are two federal programs that incentivize employers to hire workers with a criminal background in the United States. The Work Opportunity Tax Credit provides businesses with, essentially, a wage subsidy via a payroll tax credit. The Federal Bonding Program provides businesses with a government bond that covers any losses incurred as a result of criminal actions by a formerly convicted employee. Though the latter is not widely invoked, Hoffman’s research suggests that it could be highly effective.

“It suggests that the program may have low demand because of lack of information or awareness about it, as opposed to it not providing something that could be very impactful for firms,” Hoffman says.

On a state level, the research suggests that low-cost incentives and education could bolster or replace “Ban the Box” laws. Instead of shielding employers from information about candidates’ criminal backgrounds, it may be just as effective to address their concerns.

“Firms use background status both as a signal about a person’s everyday productivity as well as their left-tail risk — the chance of something bad happening,” Hoffman says. “If one can address those two types of concerns, that could be useful.”

Finally, the research provides an avenue for hiring platforms and recruiters to access untapped human capital while also increasing diversity, equity and inclusion in the workplace. In a tight labor market like today’s, this could be a winning strategy. 

“I think there are more and more businesses and platforms that are concerned with this issue, both from a business standpoint — getting jobs filled — and from a social justice standpoint," Hoffman says. 

After working with Hoffman and his colleagues, the staffing platform implemented a new policy to offer businesses crime and safety insurance along with the option to allow ex-convicts to accept jobs. In the months following the change, 12,000 job postings were made available to workers with a criminal background. Hoffman hopes that his work will inspire similar changes on other platforms.

Mitchell Hoffman is an associate professor at the Rotman School of Management, and specializes in labor economics, behavioral economics, organizational economics, productivity, and strategy.