The Economic Burden of Crime: Evidence from Mexico

ABSTRACT : Evidence suggests that during periods of rising violence, innocent civilians pay a steep price. This paper investigates the impact of an amplified environment of violence on labor outcomes in the Mexican context. The Mexican Family Life Survey offers a unique opportunity to address this research question as the first follow-up was conducted between 2005 and 2006, a period of low levels of violence, and the second follow-up was performed from 2009 to 2012, during years of greatly elevated violence. This longitudinal nature of the data allows us to compare the outcomes of the same individual in periods of varying degrees of violence, thus controlling all time-invariant individual heterogeneity while additionally accounting for a rich set of time-varying individual and household characteristics. Preliminary results show that exposure to higher homicide rates negatively affect the labor market participation of women who were self-employed before the increasing trend of crime, but increase the hourly earnings of those that remain employed. This result suggests that the women that stay in the labor market are getting compensated with higher payments to incentivize their labor participation. On the other hand, increased violence does not affect males' labor participation, but does negatively affect their earnings. Moreover, conflict has a heterogeneous effect, as the characteristics of the most affected workers are quite different in rural and urban places.