Crime and the Minimum Wage

How does the minimum wage affect crime rates? Empirical research suggests that increasing a worker’s wage can deter him from committing crimes. On the other hand, if that worker becomes displaced as a result of the minimum wage, he may be more likely to commit a crime. In this paper, I describe a frictional world in which a worker’s criminal actions are linked to his labor market outcomes. The model is calibrated to match labor market outcomes and crime decisions of workers from the National Longitudinal Survey of Youth 1997, and shows that the relationship between the aggregate crime rate and the minimum wage is U-shaped. The results from the calibrated model as well as empirical evidence from county level crime data and state level minimum wage changes from 1995 to 2014 suggest that the crime minimizing minimum to median wage ratio for 16-19 year olds is 0.91. However, the welfare maximizing minimum to median wage ratio is 0.88, not equal to the crime minimizing value. JEL: J08, J38, J64 ∗I am grateful to Peter Rupert and Guillaume Rocheteau for invaluable comments and suggestions. I would also like to thank Aspen Gorry, Christopher Flinn, and conference participants at the Spring 2016 Midwest Economic Theory Meetings at Rochester, Spring 2016 West Coast Search and Matching Workshop as well as seminar participants at the Federal Reserve Bank of St. Louis and Kansas City, University of California Santa Barbara and University of California Irvine. All remaining errors are my own. †Department of Economics, UC Santa Barbara, 2127 North Hall, Santa Barbara, CA. [email protected]. 1