Tuesday, November 22, 2011

Crime, Income Inequality, And The Economy: It’s All Related

In the mailbox today (abstract):

Skill-biased Technological Change, Earnings of Unskilled Workers, and Crime
Naci H. Mocan, Bulent Unel

This paper investigates the impact of unskilled workers' earnings on crime. Following the literature on wage inequality and skill-biased technological change, we employ CPS data to create state-year as well as state-year-and (broad) industry specific measures of skill-biased technological change, which are then used as instruments for unskilled workers' earnings in crime regressions. Regressions that employ state panels reveal that technology-induced variations in unskilled workers' earnings impact property crime with an elasticity of -1, but that wages have no impact on violent crime. The paper also estimates, for the first time in this literature, structural crime equations using micro panel data from NLSY97 and instrumenting real wages of young workers. Using state-year-industry specific technology shocks as instruments yields elasticities that are in the neighborhood of -2 for most types of crime, which is markedly larger than previous estimates. In both data sets there is evidence for asymmetric impact of unskilled workers' earnings on crime. A decline in earnings has a larger effect on crime in comparison to an increase in earnings by the same absolute value.

Translation: It’s the economy stupid! Previous studies (such as highlighted here) make that point clear, along with the impact of demographics. In other words, the incidence of crime is not just a matter of enforcement or lack thereof.

This new research highlights something else – skill levels and income inequality matter too, at the low end of the scale. If you think this is a “duh, that’s common sense” moment, you’d be surprised at how many things we take as common sense turn out to be wrong. Hence the desirability of good research into matters of social interest.

What this means is that reducing income inequality, addressing education, and building a foundation for higher wages and economic growth is inextricably related to tackling crime. Enforcement is all well and good, but prevention is better.

Technical Notes

Mocan, Naci H. & Bulent Unel, "Skill-biased Technological Change, Earnings of Unskilled Workers, and Crime", NBER Working Paper No. 17605, November 2011

1 comment:

  1. I remember seeing some ted.com video (maybe i even got if off your blog) on the effects of income inequality as opposed to relative wealth of a nation being a cause to a myriad social problems.