The Economic Burden of Crime: Evidence from Mexico

Abstract

I estimate the impact of the recent and unprecedented surge in drug-related violence in Mexico on the labor market outcomes of Mexican workers. Using a nationally representative longitudinal dataset that allows me to account for unobserved time-invariant heterogeneity, I find that there is a negative relationship between local violence and labor market outcomes. Self-employed individuals are the most sensitive to a violent environment, with men experiencing significantly reduced earnings and productivity, while women decrease their hours of work or exit the labor force entirely. I also find suggestive evidence that fear of victimization plays an important role explaining these changes.