Assessing the impacts of labor market and deterrence variables on crime rates in Mexico

I. INTRODUCTION The modem economic literature on illegal activities is primarily built upon the economic theory of crime when it comes to empirical analyses. The economic theory of crime, also known as rational choice theory, argues that individuals choose whether or not to commit a crime by comparing the expected benefits against the expected costs (Becker 1968). The expected benefits mainly include the monetary and non-pecuniary gains derived from the crime, while the expected costs mainly include forgone gains from legal alternatives and the severity of possible punishment. Crime will become less attractive if the expected benefits fall or the expected costs rise. Some labor market variables, such as average income and wage, will affect both the expected benefits and the expected costs of crimes, while some other labor market variables, such as unemployment rate, and the deterrence variables, such as numbers of police officers and the severity of punishment, will mainly affect the expected costs of crimes. Many empirical studies, principally directed toward the United States and some European countries, examine the influences of the labor market characteristics and the effectiveness of the deterrence efforts on different types of crimes, plus affiliated policy recommendations. However, comparatively few studies analyze crimes in Latin America, even though many of these countries have been plagued by crimes for the last several decades (Imbusch, Misse, and Carrion 2011). The purpose of this study is to investigate potential determinants of crimes in Mexican states. Given the significant increase in crimes in specific regions of Mexico in recent years it is important to understand the possible factors that are driving this trend. Among the papers that examine the economics of crime in Latin America, several countries and topics have been studied. For Mexico, Blanco and Villa (2008) argue that greater female labor force participation is associated with higher volumes of misogynist crimes in Veracruz, an energy-producing state in eastern Mexico. Widner, Reyes, and Enomoto (2011) discuss the effects of multiple socioeconomic variables on the number of alleged offenders caught and brought to the judicial system in Mexico. For Colombia, Gaviria (2000) proposes several models to explain the escalation of violent crimes. For Brazil, Sachsida et al. (2010) find that inequality, unemployment, and urbanization are positively correlated with crime rates. For almost all the Latin American countries, Gaviria and Pages (2002) conclude that rich and middle-class households, or households living in cities with rapid population growth, are more likely to be victimized. Although the aforementioned papers provide valuable insights for understanding sources of crimes in Latin American countries, a fuller picture depicting economic mechanisms underlying crime in Latin America is still lacking. Among all Latin American countries, the Mexican crime situation should deserve a separate study for its own merit and its potential impact on the United States because of its proximity to the U.S. southern border. This study can be considered an extension of Widne, Reyes, and Enomoto (2011) as both studies investigate factors affecting different categories of crime rates in Mexico. However, this study differs from Widner, Reyes, and Enomoto (2011) in the following four areas. First, a broader set of independent variables are allocated into groups and examined in this study. This study especially focuses on the impacts from labor market variables and deterrence variables. Next, longer panel data and different methodology are employed in this study. Third, a detailed examination of the data from different perspectives is performed by separating the whole data into subsamples according to different political administrations and geographic locations. Last but not least, some Mexican specific factors are added in the analysis, as part of the robustness tests, to further examine the specific characteristics about the Mexican crime mechanism. …