State Budget Turmoil Good News For Cons, Bad News For Everyone Else…

I was recently passed an article published in USA Today, which discussed some of the challenges states are facing due to dwindling state coffers.  Several states, including even New York, have decided to close down correctional facilities and reduce staff to ward off the budget shortfalls.  My first thought was that the prisoners impacted would be concentrated at other facilities that would remain open.  But, that is not always the case.  Some prisoners are receiving early release and/or being placed under house arrest, but since I reserve this site for economic and financial analysis, I will skip the social commentary.  From an economic stance, this news translates into more bad news for jobs in the already battered regions and the possibility for higher crime rates.  For example, closure plans in Michigan will cost the state 1,000 jobs, with one of the facilities being the county’s biggest employer.

Typically, prisons aren’t built on Park Avenue, they are often constructed in out-of-the-way remote vestiges of the state, where jobs can be scarce.  What the facility provides is lucrative and stable employment for residents, in addition to providing a means for their town’s to blossom.  But, with growing budget woes these towns, not just individuals, are in danger of financial collapse.  The article highlights several such towns that include Standish, Michigan and Franklin, New York.  Michigan, which has been especially hard hit by the current crisis, already has an unemployment rate well above the national average at 15.6%.  According to the BLS there are roughly 500K correctional officers working in the US, with an average annual income of around US$40K.  Job losses in this sector alone won’t make a significant impact on the national level, but similar situations in additional sectors aggregated together continue to adversely impact any would-be recovery in the labor market.  You need to understand the pieces before you can comprehend the whole picture.