Identifying the Effect of Unemployment on Crime

In this paper, we pursue several strategies to identify the effect of unemployment rates on crime rates. Using a state-level panel for the period from 1971 to 1997, we estimate the effect of unemployment on the rates of seven felony offenses. We control extensively for state-level demographic and economic factors and estimate specifications that allow for state-specific time trends as well as state and year fixed effects. In addition, we use prime defense contracts per-capita and a state-specific measure of exposure to oil shock as instruments for state unemployment rates. We find sizable and significant effects of unemployment on property crime rates that are stable across model specifications and estimation methodology. Our most conservative estimates suggest that nearly 40 percent of the decline in property crime rates during the 1990s is attributable to the concurrent decline in the unemployment rate. The evidence for violent crime is considerably weaker. However, a closer analysis of the violent crime of rape yields some evidence that the employment prospects of males are weakly related to state rape rates.