Researchers measure the link between unemployment and crime

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Massive layoffs in times of crisis can lead to a surge in crime, according to a study by Diogo Britto, Paolo Pinotti (both at Bocconi Baffi-CAREFIN's CLEAN center), and Breno Sampaio (Federal University of Pernambuco) published in Econometrica. Thus, active labor market policies aimed at speeding up the return of workers to jobs are even more urgently needed.

Exploiting individual-level data on the universe of male workers and criminal cases in Brazil over the 2009–2017 period, the authors observed that losing a job due to a massive layoff leads to a 23% increase in the probability of criminal prosecution.

The probability of prosecution immediately spikes at and remains constant for the following years, unless the is covered by the national unemployment insurance, that grants 80% of the salary for the three to five months following displacement. Even in this case, though, the mitigating effect vanishes when the insurance expires.

The observed effect reflects a rise in both economically motivated crimes (+43%) and (+17%) and it is considerably stronger for groups that are more likely to be liquidity constrained upon job loss, namely younger workers and those with low job tenure and low educational attainment. However, the probability of committing crimes significantly increases for all groups—including workers with above median income, albeit to a lesser extent. A spillover effect of parental job loss on children's behavior is also observed. In particular, the probability of committing a increases on average by 18% for the cohabiting sons of displaced workers.

While theory has already posed a link between unemployment and crime, has always been scarce due to the lack of individual data. The rich dataset used by the authors, however, allowed them to compare the behavior of workers displaced by massive layoffs and workers with the same characteristics, who didn't experience displacement.

The authors were also able to shed light on the mechanisms that lead from unemployment to crime. "Our results support economic explanations, primarily liquidity constraints over alternative hypotheses," Dr. Britto said. "Furthermore, the increase in all types of crimes, including offenses with no economic motivation, such as car traffic violations, suggests that upon job loss also plays an important role."

"In an unemployment crisis," Prof. Pinotti concluded, "income support should be accompanied by active labor market policies aimed at speeding up the return of workers to jobs and guaranteeing stable income rather than temporary income assistance. Furthermore, both passive and active policies should be targeted at , because such groups are at greater risk of poverty upon layoff and consequently are more likely to commit crimes."

More information: Diogo G. C. Britto et al, The Effect of Job Loss and Unemployment Insurance on Crime in Brazil, Econometrica (2022). DOI: 10.3982/ECTA18984

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