Local unemployment and crime an unresolved puzzle with implications on project evaluation

Conflict, Crime and Violence

One of the more interesting and challenging research puzzles in the economics of crime literature is to uncover the underlying relation between local unemployment (local development) and crime. Although this relation is most likely contingent to time and space, the importance of these two variables from both an individual and a social point of view make the topic eager for more research. This is the case because neither the empirical nor the theoretical literature has come about a clear cut result, maybe, as expected given the complexity of the issue at stake.

Moreover, it is common that local level employment policies are canalized through labor intensive public investment programs in local infrastructures. In this sense the International Labour Organization (ILO) issued a guide for these programs (see Bentall, Beusch, and de Veen, 1999), recognizing that “(w)ell-designed and well-implemented labour-based infrastructure programmes offer specific advantages to the social partners (governments, employers and workers) in developing countries in terms of improved access to public markets, increased employment and better returns to investment. Moreover, they provide a good opportunity to each of these partners to incorporate social policy objectives into infrastructure investment policies.

It is precisely to better understand and define the social policy objectives of these local investment programs, which are very attractive to donors (in the case of aid programs) and governments alike, as they meet employment and poverty objectives, improve income and living standards in rural and urban areas, and strengthen the domestic construction industry, that is crucial to understand the impact of improved local economic conditions on illegal activities.

In this framework, the empirical evidence between labor outcomes and crime has been far from conclusive in both its nature and robustness. Such ambiguity is linked to various factors, such as the level of data aggregation, the measures of unemployment and criminality used, and the econometric specification used. Maybe at the heart of the challenge lies the fact that many channels can relate both variables in a way that make the causality direction between both very difficult to assess.

In front of such possible problems in the estimation of the effect of unemployment on crime, a promising research strategy to obtain unbiased estimates is to analyze the evolution of crime rates where unemployment rates have changed due to reasons which are unrelated to its level of criminality. Recent contributions to the economic literature take this approach. On the one side Freedman and Owens (2015, RESTAT) study the sudden shock to demand for a subset of low-wage workers generated by the 2005 Military Base Realignment and Closure (BRAC) program in San Antonio (Texas, US) to identify the effects of localized economic development programs on crime. The authors take advantage of the roughly $2 billion spent on the renovation and construction of four military bases in San Antonio by the US Department of Defense, to show that if employment opportunities are not equally distributed among individuals, criminal activity can increase when the earnings of those individuals benefiting from the employment program go up (i.e., an increase in the supply of criminal opportunities) vis-à-vis the earnings of those not benefiting from the program.

On the other side Montolio (2016, BID-WP) examines also an infrastructure investment policy, implemented nationwide at the local level, and in particular how it affected local crime rates in the Spanish region of Catalonia. The public investment policy, developed in the wake of the global recession of 2008–09, was designed to boost local economies through job creation. The author uses geographic and time variation in the random approvals of local investment policies to estimate their impact on both unemployment and crime. The results show that despite the investment policy’s apparent failure to tackle the economic recession over the long run, local public finances did experience a boost over the short term, resulting in a temporary reduction in local unemployment rates, as well as a significant drop in crime rates.

Although both studies seem to find contradicting results, that is, a negative relation between unemployment and crime in the case of Freedman and Owen (2015) and a positive one in the case of Montolio (2016), both sets of results can be compatible in many ways. In the latter case, the results at the municipal level could indicate that an improvement in the general economic conditions in the municipality (due to the local infrastructure investment plans) reduced the overall incentives to commit crimes for both those that obtained a job and those that did not. Or even if the Freedman and Owens (2015) mechanism is at work, that could be possible, the opposite result found in Montolio (2016) could be pointing out to the fact that, at least, there is a counterbalancing force that reduces crime rates when unemployment is reduced (even if only a fraction of the total population receives direct benefits form the public investment). This counterbalancing force could be that those individuals facing worst ex-ante economic conditions (unemployed) and possible more prone to be involved in illegal activities precisely received the positive shock in their economic expectations and, as a result, decided not to engage in illegal activities. Result that are more in line with the traditional economics of crime literature (see Becker, 1968).

In both cases, a common result emerge, the need to improve the understanding of the social impact of public investment policies, especially at the local level where the benefits and costs of any public action are more easily perceived and borne by citizens. Both articles seems to point out that if policies devoted to investment in infrastructure are properly designed taking into account explicitly social policy objectives they can have a broader positive impact on local communities further than those commonly attributed to investments in local infrastructures.


Becker, G.S. 1968, “Crime and punishment: An economic approach” Journal of Political Economy, 76:2, 167-217.

Bentall, P., A. Beusch, and J. de Veen. 1999. Employment-Intensive Infrastructure Programmes: Capacity Building for Contracting in the Construction Sector. Guidelines. Geneva, Switzerland: ILO.

Freedman, M., and E. G. Owens. 2015. “Your Friends and Neighbors: Localized Economic Development and Criminal Activity.” Review of Economics and Statistics. Forthcoming.

Montolio, D. 2016. “The Unintended Consequences on Crime of “Pennies from Heaven””, BID Working paper.

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