Does crime affect unemployment? The Role of social networks

In this paper, we consider a community of individuals that are embedded within a net work of social relationships. Each individual has tight and permanent relationships with close friends and relatives (strong ties) as well as random and transitory interactions within the community (weak ties). Workers can either be employed or unemployed. Some workers do not even participate in the labor market because they are engaged in criminal activities. Unemployed workers can find a job through strong ties (assumed not to be criminals), weak ties (some of them being criminals) as well as through formal methods (such as advertisement or employment agencies). We show that crime rate within a community increases the unemployment rate of this community. Indeed, when the crime rate increases, weak ties become less valuable in terms of information content about jobs since the likelihood to interact with a criminal is higher. The overall job information available through personal contacts decreases, frictions in the labor market are exacerbated, and unemployment rises.This predicted inter play between crime and unemployment, grounded on the social setting, is reminiscent of the epidemic theory of ghettos.