Crime, Inequality, and Unemployment

• Published in: The American economic review Vol. 93; no. 5; pp. 1764 - 1777
• Main Authors: Burdett, Kenneth, Lagos, Ricardo, Wright, Randall
• Format: Journal Article
• Language: English
• Published: Nashville American Economic Association 01.12.2003
• Subjects: Cost analysis; Crime; Crime rates; Crime victims; Criminal justice; Criminals; Criminology; Economic analysis; Economic models; Economic theory; Economics; Income inequality; Inequality; Jails; Labor markets; Modeling; Shorter Papers; Social inequality; Studies; Unemployment; Wages
• ISSN: 0002-8282; 1944-7981
• DOI: 10.1257/000282803322655536

There is much work on the relationships between crime, unemployment, and inequality. A novel feature of this study is that all three of these variables will be made endogenous using an equilibrium search model. This highlights various interactions among the variables (e.g. how crime affects the unemployment rate and vice versa), and more generally, discusses some general equilibrium effects that seem to have been neglected in the literature. A key finding is that introducing criminal activity into otherwise standard models of the labor market can significantly affect the predictions of these models. Section I of the paper presents the worker's problem taking wages as given. Section II analyzes wage setting. This shows how various type of equilibria with different crime rates can arise for different parameter values, and how sometimes multiple equilibria coexist, with different amounts of crime, inequality, and unemployment. This section also discusses the relation between this model and some related literature. Section III discusses several extensions and Section IV concludes.