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Crime does pay (at least when it’s violent)!– On the compensating wage differentials of high regional crime levels

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  • Nils Braakmann

    () (Institute of Economics, Leuphana University of Lüneburg)

Abstract

This paper investigates whether high regional crime levels lead to a compensating wage differential paid by firms in the respective region. Using data from German social security records and official police statistics for 2003 to 2006, we consider both violent and non-violent crimes and use three-way error-components estimators to control for individual and regional heterogeneity. Our findings suggest a positive and rather large compensating differential for the risk of falling victim to a violent crime while no such effect exists for other criminal activities. However, our results also suggest that the wage effects for most individuals are rather small due to small variation in the crime rates.

Suggested Citation

  • Nils Braakmann, 2008. "Crime does pay (at least when it’s violent)!– On the compensating wage differentials of high regional crime levels," Working Paper Series in Economics 91, University of Lüneburg, Institute of Economics.
  • Handle: RePEc:lue:wpaper:91
    as

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    References listed on IDEAS

    as
    1. Martyn Andrews & Thorsten Schank & Richard Upward, 2006. "Practical fixed-effects estimation methods for the three-way error-components model," Stata Journal, StataCorp LP, vol. 6(4), pages 461-481, December.
    2. Thomas Cornelissen, 2008. "The Stata command felsdvreg to fit a linear model with two high-dimensional fixed effects," Stata Journal, StataCorp LP, vol. 8(2), pages 170-189, June.
    3. Gerking, Shelby D & Weirick, William N, 1983. "Compensating Differences and Interregional Wage Differentials," The Review of Economics and Statistics, MIT Press, vol. 65(3), pages 483-487, August.
    4. John M. Abowd & Francis Kramarz & David N. Margolis, 1999. "High Wage Workers and High Wage Firms," Econometrica, Econometric Society, vol. 67(2), pages 251-334, March.
    5. Thomas Cornelissen, 2008. "Using Stata for a memory-saving fixed-effects estimation of the three-way error-components model," German Stata Users' Group Meetings 2008 07, Stata Users Group.
    6. Steve Gibbons, 2004. "The Costs of Urban Property Crime," Economic Journal, Royal Economic Society, vol. 114(499), pages 441-463, November.
    7. Blomquist, Glenn C & Berger, Mark C & Hoehn, John P, 1988. "New Estimates of Quality of Life in Urban Areas," American Economic Review, American Economic Association, vol. 78(1), pages 89-107, March.
    8. Bowes, David R. & Ihlanfeldt, Keith R., 2001. "Identifying the Impacts of Rail Transit Stations on Residential Property Values," Journal of Urban Economics, Elsevier, vol. 50(1), pages 1-25, July.
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    More about this item

    Keywords

    Compensating wage differentials; crime; three-way error-components model;

    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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