By Jeffrey D. Korzenik, Chief Economist US Banking Sector and Writer
We have a structural labor shortage and a resulting economic challenge. The solution to that challenge is both a financial and societal opportunity: improving the economic inclusion of people with criminal records. The intentional hiring of people with such a background, known as ‘second chance’ or ‘fair chance’ hiring, is a key solution to labor shortages that also promotes public safety, and for those ready, is the path to rehabilitation and full participation in society. Even those who have had a negative experience hiring from this group should examine whether they approached this pool with a strategy that recognized the need for a differentiated talent acquisition and talent support tactics appropriate for this population.
Most countries of the industrialised world shared a similar demographic trajectory: a high rate of births following World War II and a subsequent sharp rate of decline in recent decades. The pace of births has fallen so much that, of the 38 countries in the OECD, only Israel has a fertility rate sufficient to even replace its native-born population. For different reasons, this is also occurring in emerging economies, whether in the aftermath of China’s one-child policy, or through strong preference shifts in populous nations like Brazil. While there is no inherently ‘right’ fertility rate, economies and societies suffer dislocation when birth rates decline at this speed.
We have no modern peacetime precedent for the ageing of so many countries and the outright declining populations already starting in nations as diverse as Japan, Uruguay, Spain and elsewhere. Understanding the economic implications and potential opportunities should be on the mind of business leaders and policymakers everywhere.
Workforce growth is fundamental to aggregate economic growth. Economists agree that the building blocks of economic growth are the ability to increase both the number of workers and their productivity. But our history of falling birth rates holds back growth. Moreover, when older workers retire, they don’t stop being consumers – but they leave a hole in the workforce that is getting harder to fill as working age populations are shrinking relative to the total base of consumers. This labor shortage slows overall global growth and can drive inflation. At the company level labor shortages mean that firms struggle to meet the staffing needs to service their existing customer base or grow.
While we cannot do anything to change the birth rates of twenty and thirty years ago, we can ensure that we ‘leave no worker behind.’ That is, make sure no individual or group faces unnecessary barriers to working and advancement. When individuals are marginalized, either involuntarily unemployed, are undertrained, or for whatever reason can’t contribute to their full potential, all of us suffer from worse economic growth. Conversely, creating pathways for advancement benefits us all.
While varying from country to country, few groups are as marginalized as workers who have a criminal record. While the U.S. may lead among free nations in rates of incarceration, it is by no means just an American problem; the UK has the highest rate in Western Europe and both share remarkably similar rates of unemployment and recidivism among those impacted by their justice systems[1]. Many Eastern European, South American and select other countries have criminal justice systems that leave sizeable segments of their population with criminal records and curtailed economic opportunities[2].
Second chance or fair chance hiring – tapping and developing the talent of those who have, yes, earned a criminal record, but have also fulfilled their judicial obligations, is a tremendous labor opportunity. In the US, for example, it is the single largest category of overlooked worker, a recognition of both the size of this potential source of human capital (70+ million[3] with some sort of criminal record, some 19 million[4] of which have a conviction for a more serious crime, known in the US as a ‘felony’), and the degree to which this group has been overlooked. Other countries may have smaller opportunities with this population, but virtually every country can improve talent practices.
The first step is to recognize that this nontraditional talent pool requires a different approach, both in terms of finding people who are a good fit for the hiring company, and ensuring that the employee can thrive. Successful ‘second chance employers’ typically partner with community-based organizations to help them find viable candidates and help provide wraparound services, such as finding affordable housing and transportation. Such services recognize that many people with records are in dire poverty and may have lived lives without mentors or coaching. While many employers partner with outside service providers, some augment this by providing internal staff with roles variously described as social workers, life coaches or navigators. While this is surely an investment of effort and often money, people who are ready to prove they are more than their worst mistakes can be incredibly engaged and loyal workers, offering a strong return on any investment[5].
Why should companies establish second chance hiring practices? For the reason businesses should consider any other talent strategy: to broaden their pool of applicants and ensure that they can hire the best candidate for the role.
References
[1] https://www.prisonpolicy.org/global/2024.html
[2] https://publications.parliament.uk/pa/cm201617/cmselect/cmworpen/58/58.pdf and
https://bjs.ojp.gov/data-collection/recidivism-state-prisoners
[3] cited estimate of the National Employment Law Project
[4] https://www.ncbi.nlm.nih.gov/pmc/articles/PMC5996985/
[5] The evidence is largely through the experience of small companies and case studies. https://www.hbs.edu/faculty/Pages/item.aspx?num=57027
(https://secondchancebusinesscoalition.org/)
https://drive.google.com/file/d/10XQzhgqYNFpd4CvT5z5c9xpN_lPR4G8K/view
In terms of return on investment of support services, there’s a private social worker network in Michigan that tries to measure the return on investment – they estimate 330% (https://www.grsource.org/_files/ugd/ed831c_d4062bff6c634f9d899901423069f20f.pdf)
