Identifying the Effect of Unemployment on Crime

Abstract

Previous estimates of the effect of unemployment on crime commonly omit determinants of criminal behavior that vary with the business cycle, creating correlation between unemployment rates and the residuals in aggregate crime regressions. In this paper, we employ several strategies that attempt to minimize or break this correlation and eliminate the accompanying omitted variables bias to estimates of the effect of unemployment on crime. Using a state-level panel for the period from 1970 to 1993, we explore the sensitivity of crime-unemployment elasticity estimates to explicit controls for per-capita alcohol consumption, a factor that has been shown in the past to be pro-cyclical and a partial determinant of criminal behavior. In addition, we use prime defense contracts per-capita at the state level as an instrument for state unemployment rates. Both controlling for alcohol consumption and using instrumental variables to correct for omitted variables bias yields large effects of unemployment on the seven felony offenses recorded by the Department of Justice. Moreover, in contrast to previous research, we find significant and sizable positive effects of unemployment on the rates of specific violent, as well as property crimes.

Violent Crime in the United States of America: A Time-Series Analysis Between 1960–2000

“…Levitt, 2001;Carmichael and Ward, 2001;Levitt, 1996;Elliot and Ellingworth, 1996). Fourth, I find a causal link between alcohol consumption and violent crime, which support findings reported by Raphael and Winter-Ebmer (2001).…”

“…An increasing number of recent studies (e.g. Cherry and List, 2002;Raphael and Winter-Ebmer, 2001;Entorf and Spengler, 2000;Levitt, 1996) have produced widely divergent results regarding the effects of the criminal justice system and economic activity on violent crime rates. This may cast serious doubts on the relevance of economic theory in the determination of violent offences and might suggest the collaboration of other disciplines in exploring this type of offence.…”

The Effects of Pre-Trial Detention on Conviction, Future Crime, and Employment: Evidence from Randomly Assigned Judges

“…Participation in the formal labor market is important for social welfare given its correlation with future criminal activity (e.g., Grogger 1998; Raphael and Winter-Ebmer 2001;Gould, Weinberg, and Mustard 2002), and because it partially proxies for consumption. Apart from direct employment effects, pretrial release may also impact defendant welfare by affecting the take-up of social safety net programs.…”

Crime, deterrence and unemployment in Greece: A panel data approach

“…6 We have also allowed unemployment to be endogenous in the model (i.e. crime participation may reduce the employability of formerly convicted offenders and it may in turn contribute to observed unemployment -see Raphael & Winter-Ebmer, 2001). However, the results are generally stable and hence, are not reported here.…”