Researchers measure the link between unemployment and crime

According to a study by Diogo Britto, Paolo Pinotti (both at Bocconi Baffi-CAREFIN’s CLEAN centre) and Breno Sampaio (Federal University of Pernambuco), massive layoffs in times of crisis can lead to an increase in crime econometrics. Therefore, active labor market policies aimed at accelerating the return of workers to the labor market are even more urgently needed.

Using individual-level data on the universe of male workers and crime cases in Brazil over the period 2009–2017, the authors found that losing a job due to mass layoffs resulted in a 23% increase in the likelihood of criminal prosecution.

The likelihood of criminal prosecution increases immediately upon job loss and remains constant for subsequent years unless the worker is covered by state unemployment insurance, which pays 80% of salary for the three to five months following the transfer. But even in this case, the mitigating effect no longer applies when the insurance expires.

The observed effect reflects an increase in both economically motivated crimes (+43%) and violent crimes (+17%) and is significantly stronger among groups who are more likely to have their liquidity reduced by losing their job, namely younger workers and those with low income tenure and low educational qualifications. However, the likelihood of committing crime increases significantly for all groups, including workers with above-average incomes, albeit to a lesser extent. A spillover effect of parental job loss on children’s behavior is also observed. In particular, the likelihood of committing a crime increases by an average of 18% for the cohabiting sons of displaced persons.

While theory already linked unemployment to crime, empirical evidence has always been scarce due to a lack of individual data. However, the large data set used by the authors allowed them to compare the behavior of workers displaced by mass layoffs and workers with the same characteristics who did not experience displacement.

The authors were also able to shed light on the mechanisms that lead from unemployment to crime. “Our results support economic explanations, especially liquidity constraints versus alternative hypotheses,” said Dr. Britto. “In addition, the increase in all types of crime, including crimes without economic motivation, such as traffic violations, suggests that psychological stress also plays an important role in job loss.”

“In an unemployment crisis,” concluded Prof Pinotti, “income support should be accompanied by active labor market policies aimed at accelerating workers’ return to the labor market and guaranteeing a stable income, rather than temporary income support. In addition, both passive and active measures should be targeted at vulnerable groups, as these groups are at higher risk of poverty upon release and consequently more likely to commit crime.”

Provided by Bocconi University