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Identifying the Effect of Unemployment on Crime

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  • Raphael, Steven
  • Winter-Ebmer, Rudolf

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.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 2129.

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Date of creation: Apr 1999
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Handle: RePEc:cpr:ceprdp:2129

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Keywords: Crime; Unemployment;

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References

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  1. Ruhm, Christopher J., 1995. "Economic conditions and alcohol problems," Journal of Health Economics, Elsevier, vol. 14(5), pages 583-603, December.
  2. Lott, John R, Jr & Mustard, David B, 1997. "Crime, Deterrence, and Right-to-Carry Concealed Handguns," The Journal of Legal Studies, University of Chicago Press, University of Chicago Press, vol. 26(1), pages 1-68, January.
  3. Corman, Hope & Joyce, Theodore & Lovitch, Norman, 1987. "Crime, Deterrence and the Business Cycle in New York City: A VAR Approach," The Review of Economics and Statistics, MIT Press, vol. 69(4), pages 695-700, November.
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  5. Christopher J. Ruhm, 2000. "Are Recessions Good For Your Health?," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 115(2), pages 617-650, May.
  6. Grogger, Jeffrey, 1995. "The Effect of Arrests on the Employment and Earnings of Young Men," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 110(1), pages 51-71, February.
  7. Steven D. Levitt, 1995. "Using Electoral Cycles in Police Hiring to Estimate the Effect of Policeon Crime," NBER Working Papers 4991, National Bureau of Economic Research, Inc.
  8. Nagin, Daniel & Waldfogel, Joel, 1995. "The effects of criminality and conviction on the labor market status of young British offenders," International Review of Law and Economics, Elsevier, Elsevier, vol. 15(1), pages 109-126, January.
  9. Levitt, Steven D, 1996. "The Effect of Prison Population Size on Crime Rates: Evidence from Prison Overcrowding Litigation," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 111(2), pages 319-51, May.
  10. Witte, Ann D & Tauchen, Helen, 1994. "Work and Crime: An Exploration Using Panel Data," Public Finance = Finances publiques, , , vol. 49(Supplemen), pages 155-67.
  11. Steven J. Davis & Prakash Lougani & Ramamohan Mahidhara, 1997. "Regional Labor Fluctuations: Oil Shocks, Military Spending, and Other Driving Forces," JCPR Working Papers, Northwestern University/University of Chicago Joint Center for Poverty Research 4, Northwestern University/University of Chicago Joint Center for Poverty Research.
  12. Jeff Grogger, 1997. "Market Wages and Youth Crime," NBER Working Papers 5983, National Bureau of Economic Research, Inc.
  13. Papps, Kerry L. & Winkelmann, Rainer, 1998. "Unemployment and Crime: New Answers to an Old Question," IZA Discussion Papers 25, Institute for the Study of Labor (IZA).
  14. Entorf, Horst & Spengler, Hannes, 2000. "Socioeconomic and demographic factors of crime in Germany: Evidence from panel data of the German states," International Review of Law and Economics, Elsevier, Elsevier, vol. 20(1), pages 75-106, March.
  15. Olivier Jean Blanchard & Lawrence F. Katz, 1992. "Regional Evolutions," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 23(1), pages 1-76.
  16. Viscusi, W Kip, 1986. "The Risks and Rewards of Criminal Activity: A Comprehensive Test of Criminal Deterrence," Journal of Labor Economics, University of Chicago Press, University of Chicago Press, vol. 4(3), pages 317-40, July.
  17. Hooker, Mark A & Knetter, Michael M, 1997. "The Effects of Military Spending on Economic Activity: Evidence from State Procurement Spending," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 29(3), pages 400-421, August.
  18. Freeman, Scott & Grogger, Jeffrey & Sonstelie, Jon, 1996. "The Spatial Concentration of Crime," Journal of Urban Economics, Elsevier, vol. 40(2), pages 216-231, September.
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