IDEAS home Printed from https://ideas.repec.org/p/fip/fedcwp/0715.html
   My bibliography  Save this paper

Crime and the labor market: a search model with optimal contracts

Author

Listed:
  • Bryan Engelhardt
  • Guillaume Rocheteau
  • Peter Rupert

Abstract

This paper extends the Pissarides (2000) model of the labor market to include crime and punishment `a la Becker (1968). All workers, irrespective of their labor force status can commit crimes and the employment contract is determined optimally. The model is used to study, analytically and quantitatively, the effects of various labor market and crime policies. For instance, a more generous unemployment insurance system reduces the crime rate of the unemployed but its effect on the crime rate of the employed depends on job duration and jail sentences. When the model is calibrated to U.S. data, the overall effect on crime is positive but quantitatively small. Wage subsidies reduce unemployment and crime rates of employed and unemployed workers, and improve society?s welfare. Hiring subsidies reduce unemployment but they can raise the crime rate of employed workers. Crime policies (police technology and jail sentences) affect crime rates significantly but have only negligible effects on the labor market.

Suggested Citation

  • Bryan Engelhardt & Guillaume Rocheteau & Peter Rupert, 2007. "Crime and the labor market: a search model with optimal contracts," Working Papers (Old Series) 0715, Federal Reserve Bank of Cleveland.
    • Handle: RePEc:fip:fedcwp:0715
    DOI: 10.26509/frbc-wp-200715
    as

    Download full text from publisher

    File URL: https://doi.org/10.26509/frbc-wp-200715
    File Function: Persistent link
    Download Restriction: no
    File URL: https://www.clevelandfed.org/-/media/project/clevelandfedtenant/clevelandfedsite/publications/working-papers/2007/wp-0715-crime-and-the-labor-market-a-search-model-with-optimal-contracts-pdf.pdf
    File Function: Full text
    Download Restriction: no
    File URL: https://libkey.io/10.26509/frbc-wp-200715?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Steven D. Levitt, 2004. "Understanding Why Crime Fell in the 1990s: Four Factors that Explain the Decline and Six that Do Not," Journal of Economic Perspectives, American Economic Association, vol. 18(1), pages 163-190, Winter.
    2. repec:bla:scandj:v:100:y:1998:i:1:p:113-41 is not listed on IDEAS
    3. Dale T. Mortensen & Christopher A. Pissarides, 1994. "Job Creation and Job Destruction in the Theory of Unemployment," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 61(3), pages 397-415.
    4. Imrohoroglu, Ayse & Merlo, Antonio & Rupert, Peter, 2000. "On the Political Economy of Income Redistribution and Crime," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 41(1), pages 1-25, February.
    5. Gary S. Becker, 1974. "Crime and Punishment: An Economic Approach," NBER Chapters, in: Essays in the Economics of Crime and Punishment, pages 1-54, National Bureau of Economic Research, Inc.
    6. Christopher A. Pissarides & Barbara Petrongolo, 2001. "Looking into the Black Box: A Survey of the Matching Function," Journal of Economic Literature, American Economic Association, vol. 39(2), pages 390-431, June.
    7. Olivier Marie & Stephen Machin, 2004. "Crime And Benefit Cuts," Royal Economic Society Annual Conference 2004 134, Royal Economic Society.
    8. Ken Burdett & Melvyn Coles, 2003. "Equilibrium Wage-Tenure Contracts," Econometrica, Econometric Society, vol. 71(5), pages 1377-1404, September.
    9. Christopher A. Pissarides, 1994. "Search Unemployment with On-the-job Search," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 61(3), pages 457-475.
    10. Ayse Imrohoroglu & Antonio Merlo & Peter Rupert, 2004. "What Accounts For The Decline In Crime?," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 45(3), pages 707-729, August.
    11. Marco Cozzi, 2007. "Hard Drugs Addiction, Drug Violations and Property Crimes in the US," 2007 Meeting Papers 51, Society for Economic Dynamics.
    12. Lochner, Lance & Moretti, Enrico, 2002. "The Effect of Education on Crime: Evidence from Prison Inmates, Arrests, and Self-Reports," Department of Economics, Working Paper Series qt4mf8k11n, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
    13. Christopher J. Flinn, 2006. "Minimum Wage Effects on Labor Market Outcomes under Search, Matching, and Endogenous Contact Rates," Econometrica, Econometric Society, vol. 74(4), pages 1013-1062, July.
    14. Margaret Stevens, 2004. "Wage-Tenure Contracts in a Frictional Labour Market: Firms' Strategies for Recruitment and Retention," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 71(2), pages 535-551.
    15. Robert Shimer, 2005. "The Cyclical Behavior of Equilibrium Unemployment and Vacancies," American Economic Review, American Economic Association, vol. 95(1), pages 25-49, March.
    16. Lance Lochner, 2004. "Education, Work, And Crime: A Human Capital Approach," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 45(3), pages 811-843, August.
    17. Daron Acemoglu, 1997. "Training and Innovation in an Imperfect Labour Market," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 64(3), pages 445-464.
    18. Lance Lochner & Enrico Moretti, 2004. "The Effect of Education on Crime: Evidence from Prison Inmates, Arrests, and Self-Reports," American Economic Review, American Economic Association, vol. 94(1), pages 155-189, March.
    19. Engelhardt, Bryan & Rocheteau, Guillaume & Rupert, Peter, 2008. "Crime and the labor market: A search model with optimal contracts," Journal of Public Economics, Elsevier, vol. 92(10-11), pages 1876-1891, October.
    20. van Ours, Jan C. & Boone, Jan, 2004. "Effective Active Labour Market Policies," CEPR Discussion Papers 4707, C.E.P.R. Discussion Papers.
    21. Eric D. Gould & Bruce A. Weinberg & David B. Mustard, 2002. "Crime Rates And Local Labor Market Opportunities In The United States: 1979-1997," The Review of Economics and Statistics, MIT Press, vol. 84(1), pages 45-61, February.
    22. Kenneth Burdett & Ricardo Lagos & Randall Wright, 2003. "Crime, Inequality, and Unemployment," American Economic Review, American Economic Association, vol. 93(5), pages 1764-1777, December.
    23. Joseph A. Ritter & Lowell J. Taylor, 1997. "Economic models of employee motivation," Review, Federal Reserve Bank of St. Louis, issue Sep, pages 3-21.
    24. Carmichael, Lorne, 1985. "Can Unemployment Be Involuntary? Comment [Equilibrium Unemployment as a Worker Discipline Device]," American Economic Review, American Economic Association, vol. 75(5), pages 1213-1214, December.
    25. Chien-Chieh Huang & Derek Laing & Ping Wang, 2004. "Crime And Poverty: A Search-Theoretic Approach," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 45(3), pages 909-938, August.
    26. Bedard, Kelly & Helland, Eric, 2004. "The location of women's prisons and the deterrence effect of "harder" time," International Review of Law and Economics, Elsevier, vol. 24(2), pages 147-167, June.
    27. Burdett, Kenneth & Mortensen, Dale T, 1998. "Wage Differentials, Employer Size, and Unemployment," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(2), pages 257-273, May.
    28. Bonilla Roberto & Burdett Kenneth, 2010. "On-the-Job Search and Labor Market Equilibrium," The B.E. Journal of Macroeconomics, De Gruyter, vol. 10(1), pages 1-28, March.
    29. Christopher A. Pissarides, 2000. "Equilibrium Unemployment Theory, 2nd Edition," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262161877, December.
    30. Garibaldi, Pietro & Wasmer, Etienne, 2001. "Labor Market Flows and Equilibrium Search Unemployment," IZA Discussion Papers 406, Institute of Labor Economics (IZA).
    31. Robert Shimer, 2006. "On-the-Job Search and Strategic Bargaining," Contributions to Economic Analysis, in: Structural Models of Wage and Employment Dynamics, pages 37-59, Emerald Group Publishing Limited.
    32. Mirko Draca & Stephen Machin, 2015. "Crime and Economic Incentives," Annual Review of Economics, Annual Reviews, vol. 7(1), pages 389-408, August.
    33. Grogger, Jeff, 1998. "Market Wages and Youth Crime," Journal of Labor Economics, University of Chicago Press, vol. 16(4), pages 756-791, October.
    34. Hoon, H.T. & Phelps, E.S., 1998. "Low-Wage Employment Subsidies in a Labor-Turnover Model of the 'Natural Rate'," Papers 98-004, Indiana - Center for Econometric Model Research.
    35. Bertil Holmlund, 1998. "Unemployment Insurance in Theory and Practice," Scandinavian Journal of Economics, Wiley Blackwell, vol. 100(1), pages 113-141, March.
    36. Boone, J. & van Ours, J.C., 2004. "Effective Labor Market Policies," Discussion Paper 2004-87, Tilburg University, Center for Economic Research.
    37. Arthur J. Hosios, 1990. "On The Efficiency of Matching and Related Models of Search and Unemployment," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 57(2), pages 279-298.
    38. Freeman, Richard B., 1999. "The economics of crime," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 52, pages 3529-3571, Elsevier.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Engelhardt, Bryan & Rocheteau, Guillaume & Rupert, Peter, 2007. "Crime and the Labor Market in a Search Model with Pairwise-Efficient Separations," University of California at Santa Barbara, Economics Working Paper Series qt72r6g75d, Department of Economics, UC Santa Barbara.
    2. Christine Braun, 2019. "Crime and the minimum wage," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 32, pages 122-152, April.
    3. Kangoh Lee, 2018. "Unemployment and crime: the role of apprehension," European Journal of Law and Economics, Springer, vol. 45(1), pages 59-80, February.
    4. M. Antonella Mancino, 2022. "A Search Model Of Early Employment Careers And Youth Crime," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 63(1), pages 329-390, February.
    5. Mustard, David B., 2010. "How Do Labor Markets Affect Crime? New Evidence on an Old Puzzle," IZA Discussion Papers 4856, Institute of Labor Economics (IZA).
    6. Giulio Fella & Giovanni Gallipoli, 2014. "Education and Crime over the Life Cycle," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 81(4), pages 1484-1517.
    7. Jackson, Paul, 2023. "Equilibrium underemployment," Labour Economics, Elsevier, vol. 81(C).
    8. Denis Fougère & Francis Kramarz & Julien Pouget, 2009. "Youth Unemployment and Crime in France," Journal of the European Economic Association, MIT Press, vol. 7(5), pages 909-938, September.
    9. Richard Rogerson & Robert Shimer & Randall Wright, 2005. "Search-Theoretic Models of the Labor Market: A Survey," Journal of Economic Literature, American Economic Association, vol. 43(4), pages 959-988, December.
    10. Paolo Buonanno, 2003. "The Socioeconomic Determinants of Crime. A Review of the Literature," Working Papers 63, University of Milano-Bicocca, Department of Economics, revised Nov 2003.
    11. Lastauskas, Povilas & Tatsi, Eirini, 2017. "Spatial Nexus in Crime and Unemployment in Times of Crisis," Working Paper Series 2/2017, Stockholm University, Swedish Institute for Social Research.
    12. Bindler, Anna, 2016. "Still unemployed, what next? Crime and unemployment duration," Working Papers in Economics 660, University of Gothenburg, Department of Economics.
    13. David B. Mustard, 2010. "Labor Markets and Crime: New Evidence on an Old Puzzle," Chapters, in: Bruce L. Benson & Paul R. Zimmerman (ed.), Handbook on the Economics of Crime, chapter 14, Edward Elgar Publishing.
    14. Altindag, Duha T., 2012. "Crime and unemployment: Evidence from Europe," International Review of Law and Economics, Elsevier, vol. 32(1), pages 145-157.
    15. l'Haridon, Olivier & Malherbet, Franck & Pérez-Duarte, Sébastien, 2013. "Does bargaining matter in the small firms matching model?," Labour Economics, Elsevier, vol. 21(C), pages 42-58.
    16. Giulio Fella & Giovanni Gallipoli, 2014. "Education and Crime over the Life Cycle," Review of Economic Studies, Oxford University Press, vol. 81(4), pages 1484-1517.
    17. Javier Cano-Urbina & Lance Lochner, 2019. "The Effect of Education and School Quality on Female Crime," Journal of Human Capital, University of Chicago Press, vol. 13(2), pages 188-235.
    18. Burgess, Simon & Turon, Hélène, 2010. "Worker flows, job flows and unemployment in a matching model," European Economic Review, Elsevier, vol. 54(3), pages 393-408, April.
    19. Gaurav Khanna & Carlos Medina & Anant Nyshadham & Jorge Tamayo & Nicolas Torres, 2023. "Formal Employment and Organised Crime: Regression Discontinuity Evidence from Colombia," The Economic Journal, Royal Economic Society, vol. 133(654), pages 2427-2448.
    20. Shiyun Zhang, 2022. "Immigration and Crime in Frictional Labor Markets," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 44, pages 152-183, April.

    More about this item

    Keywords

    ;
    ;
    ;

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J0 - Labor and Demographic Economics - - General
    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:fip:fedcwp:0715. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: 4D Library (email available below). General contact details of provider: https://edirc.repec.org/data/frbclus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.