A Model of Crime and the Labor Market∗

This paper examines interactions between the labor market and crime. It seems reasonable to believe that changes in policy or technologies that affect the labor market might affect the extent of criminal activities, and vice versa–changes in the crime sector can affect the labor market. To analyze these interactions we construct a search-theoretic model where labor market outcomes and crimes are determined jointly. We establish that a more generous unemployment insurance system raises the total crime rate, although our calibration shows the effect is quantitatively small. A change in preferences toward market work that generates a rise in labor market participation leads to an increase in crime. We also describe the effects that changes in workers’ compensation, the availability of crime opportunities, and crime policies have on the labor market. ∗We thank Marco Cozzi, Dale Mortensen, Victor Rios-Rull, Richard Rogerson and Randall Wright for their comments. We also thank the seminar participants at the Federal Reserve Bank of Cleveland and Federal Reserve Board, the universities of Texas, Iowa, Pennsylvania, Santa Barbara, Singapore and Western Ontario and the UQAM conference on search and matching. This paper was completed while Rocheteau was visiting the University of Pennsylvania. The views expressed herein are those of the authors and not necessarily those of the Federal Reserve Bank of Cleveland or the Federal Reserve System. 1 USC FBE DEPT. MACROECONOMICS presented by Peter Rupert FRIDAY, Sept. 22, 2006 3:30 pm – 5:00 pm, Room: HOH-601K & INTERNATIONAL FINANCE WORKSHOP JOINT USC ECONOMICS DEPT. AND