Crime and the labor market: a search model with optimal contracts

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Crime and the labor market: a search model with optimal contracts

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Bryan Engelhardt
Guillaume Rocheteau
Peter Rupert

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Bryan Eldon Engelhardt

Abstract

This paper extends the Pissarides (2000) model of the labor market to include crime and punishment `a la Becker (1968). All workers, irrespective of their labor force status can commit crimes and the employment contract is determined optimally. The model is used to study, analytically and quantitatively, the effects of various labor market and crime policies. For instance, a more generous unemployment insurance system reduces the crime rate of the unemployed but its effect on the crime rate of the employed depends on job duration and jail sentences. When the model is calibrated to U.S. data, the overall effect on crime is positive but quantitatively small. Wage subsidies reduce unemployment and crime rates of employed and unemployed workers, and improve society’s welfare. Hiring subsidies reduce unemployment but they can raise the crime rate of employed workers. Crime policies (police technology and jail sentences) affect crime rates significantly but have only negligible effects on the labor market.

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Paper provided by Federal Reserve Bank of Cleveland in its series Working Paper with number 0715.

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Date of creation: 2007
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Handle: RePEc:fip:fedcwp:0715

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This paper has been announced in the following NEP Reports:

NEP-ALL-2007-11-10 (All new papers)
NEP-DGE-2007-11-10 (Dynamic General Equilibrium)
NEP-LAB-2007-11-10 (Labour Economics)
NEP-LAW-2007-11-10 (Law & Economics)

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Other versions:
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Other versions:
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Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

Bryan Engelhardt, 2008. "The Effect of Employment Frictions on Crime: Theory and Estimation," Working Papers 0805, College of the Holy Cross, Department of Economics. [Downloadable!]

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