Formal Employment and Organized Crime: Regression Discontinuity Evidence from Colombia

Abstract

Canonical models of criminal behavior highlight the importance of economic incentives and employment opportunities in determining crime (Becker, 1968). Yet, there is little causal evidence leveraging individual-level variation in support of these claims. Over a decade, we link administrative micro-data on socioeconomic measures with the universe of criminal arrests in Medellin. We test whether increasing the relative costs to formal-sector employment led to more crime. We exploit plausibly exogenous variation in employment around a cutoff in the socioeconomic score, below which individuals receive health care if they are not formally employed. Using a regression discontinuity design, we show that the policy had the unintended consequence of inducing a fall in formal-sector employment and a corresponding spike in organized criminal activity. There are no effects on less economically motivated crimes like those of impulse or opportunity. Our results confirm the relationship between formal employment and crime, validating models of criminal activity as a rational economic choice.

Gang rule: Understanding and Countering Criminal Governance

“…This literature began with studies of the origins, internal organization, and incentives of these illegal firms and primitive states (Schelling, 1971;Fiorentini and Peltzman, 1997;Konrad and Skaperdas, 1998). More recently, there has been a surge of interest in international organized crime, including the personnel economics and career paths of gang members (Khanna et al, 2019;Sviatschi, 2018;Carvalho and Soares, 2016); studies of market structure and the production of violence (Castillo and Kronick, 2020;Brown et al, 2020;Bueno de Mesquita, 2020); the effects of exogenous supply and demand shocks on competition and violence levels Dube et al, 2016;Sobrino, 2019;Limodio, 2018); and the historical origins of drug cartels (Murphy and Rossi, 2020). There are also parallels between gangs strategically increasing rule in response to state presence, and a political economy literature on how organized criminals influence elections (De Feo and De Luca, 2017;Alesina et al, 2019;Dal Bó et al, 2006;Acemoglu et al, 2020).…”

Job Loss, Credit, and Crime in Colombia

“…We also contribute to the study of the economic motives for criminal employment (Becker, 1968;Ehrlich, 1973;Fu and Wolpin, 2017;Khanna et al, 2019) by exploiting individual level variation in job displacement, opportunities for legitimate job replacement, and access to credit for meeting stopgap consumption needs to confirm economic incentives as primary mechanisms underlying criminal responses to employment shocks. By using two distinct sources of identifying variation, we are able to make causal inferences about the ability of consumption credit to dampen the criminal response to employment shocks.…”