Abstract

The labor market prospects of young, unskilled men fell dramatically in the 1980s and improved in the 1990s. Crime rates show a reverse pattern: increasing during the 1980s and falling in the 1990s. Because young, unskilled men commit most crime, this paper seeks to establish a causal relationship between the two trends. Previous work on the relationship between labor markets and crime focused mainly on the relationship between the unemployment rate and crime, and found inconclusive results. In contrast, this paper examines the impact of both wages and unemployment on crime, and uses instrumental variables to establish causality. We conclude that both wages and unemployment are significantly related to crime, but that wages played a larger role in the crime trends over the last few decades. These results are robust to the inclusion of deterrence variables, controls for simultaneity, and controlling for individual and family characteristics.

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