Local Labor Market Conditions and Crime: Evidence from the Brazilian Trade Liberalization

60 Pages Posted: 18 Jan 2016

See all articles by Rafael Dix-Carneiro

Rafael Dix-Carneiro

Duke University

Rodrigo R. Soares

Columbia University - School of International & Public Affairs (SIPA); Getulio Vargas Foundation (FGV) - Sao Paulo School of Economics; IZA Institute of Labor Economics

Gabriel Ulyssea

University of Oxford - Department of Economics

Abstract

This paper estimates the effect of local labor market conditions on crime in a developing country with high crime rates. Contrary to the previous literature, which has focused exclusively on developed countries with relatively low crime rates, we find that labor market conditions have a strong effect on homicides. We exploit the 1990s trade liberalization in Brazil as a natural experiment generating exogenous shocks to local labor demand. Regions facing more negative shocks experience large relative increases in crime rates in the medium term, but these effects virtually disappear in the long term. This pattern mirrors the labor market responses to the trade shocks. Using the trade liberalization episode to design an instrumental variables strategy, we find that a 10% reduction in expected labor market earnings (employment rate × earnings) leads to a 39% increase in homicide rates. Our results highlight an additional dimension of adjustment costs following trade shocks that has so far been overlooked in the literature.

Keywords: labor markets, crime, trade liberalization

JEL Classification: F16, J23, J24, K42

Suggested Citation

Dix-Carneiro, Rafael and Soares, Rodrigo R. and Ulyssea, Gabriel, Local Labor Market Conditions and Crime: Evidence from the Brazilian Trade Liberalization. IZA Discussion Paper No. 9638, Available at SSRN: https://ssrn.com/abstract=2716579

Rafael Dix-Carneiro (Contact Author)

Duke University ( email )

100 Fuqua Drive
Durham, NC 27708-0204
United States

Rodrigo R. Soares

Columbia University - School of International & Public Affairs (SIPA) ( email )

420 West 118th Street
New York, NY 10027
United States

Getulio Vargas Foundation (FGV) - Sao Paulo School of Economics ( email )

Rua Itapeva 474 s.1202
São Paulo, São Paulo 01332-000
Brazil

IZA Institute of Labor Economics

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

Gabriel Ulyssea

University of Oxford - Department of Economics ( email )

10 Manor Rd
Oxford, OX1 3UQ
United Kingdom

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