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Identifying the Effect of Unemployment on Crime

UCSD Economics Discussion Paper 98-19

37 Pages Posted: 27 Jan 1999  

Steven Raphael

University of California, Berkeley - The Richard & Rhoda Goldman School of Public Policy

Rudolf Winter-Ebmer

Johannes Kepler University Linz - Department of Economics; Institute for Advanced Studies (IHS) - Department of Economics & Finance; Centre for Economic Policy Research (CEPR); IZA Institute of Labor Economics

Multiple version iconThere are 2 versions of this paper

Date Written: January 2000

Abstract

Previous estimates of the effect of unemployment on crime commonly omit determinants of criminal behavior that vary with the business cycle, creating correlation between unemployment rates and the residuals in aggregate crime regressions. In this paper, we employ several strategies that attempt to minimize or break this correlation and eliminate the accompanying omitted variables bias to estimates of the effect of unemployment on crime. Using a state-level panel for the period from 1970 to 1993, we explore the sensitivity of crime-unemployment elasticity estimates to explicit controls for per-capita alcohol consumption, a factor that has been shown in the past to be pro-cyclical and a partial determinant of criminal behavior. In addition, we use prime defense contracts per-capita at the state level as an instrument for state unemployment rates. Both controlling for alcohol consumption and using instrumental variables to correct for omitted variables bias yields large effects of unemployment on the seven felony offenses recorded by the Department of Justice. Moreover, in contrast to previous research, we find significant and sizable positive effects of unemployment on the rates of specific violent, as well as property crimes.

JEL Classification: J6, K42

Suggested Citation

Raphael, Steven and Winter-Ebmer, Rudolf, Identifying the Effect of Unemployment on Crime (January 2000). UCSD Economics Discussion Paper 98-19. Available at SSRN: https://ssrn.com/abstract=145790 or http://dx.doi.org/10.2139/ssrn.145790

Steven Raphael (Contact Author)

University of California, Berkeley - The Richard & Rhoda Goldman School of Public Policy ( email )

2607 Hearst Avenue
Berkeley, CA 94720-7320

Rudolf Winter-Ebmer

Johannes Kepler University Linz - Department of Economics ( email )

Altenbergerstrasse 69
A-4040 Linz, 4040
Austria
+43 732 2468 8236 (Phone)
+43 732 2468 8238 (Fax)

HOME PAGE: http://www.econ.jku.at/winter

Institute for Advanced Studies (IHS) - Department of Economics & Finance ( email )

Stumpergasse 56
A-1060 Vienna, A-1060
Austria

HOME PAGE: http://www.ihs.ac.at

Centre for Economic Policy Research (CEPR)

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

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