An analysis of the Cointegration and the Socio-economic Impacts of Unemployment on Crime
Marvin A. Cole
Economics 405, Section 004016
March 28, 2010
Unemployment and Crime:
An analysis of the Cointegration and the Socio-economic Impacts of Unemployment on Crime In today’s society, we are faced with an alarming situation with tends to plaque us and have made it on many of our chief economist and researchers list. Evidence of this is based on the works of many econometricians who tried to find the relationship between crime and how it affects the level of unemployment within a country. Siegel (2009) asserted that “crime is a violation of societal rules of behavior as interpreted and expressed by a criminal legal code created by people holding social and political power. Individuals who violate these rules are subject to sanctions by state authority, social stigma, and loss of status” (p. 18). On a more macro-economic level, the Bureau of Labor Statistics (BLS) defines unemployment as people who do not have a job, have actively looked for work in the past four weeks, and are currently available for work. Also, people who were temporarily laid off and are waiting to be called back to that job are counted as unemployed. Numerous studies have shown that there is a positive correlation between unemployment and crime with the former bear strong influence on the latter. Economics of crime or illegal activities has grown into a new field, which requires an investigative review of its principal components; particularly this is as a result of the rapid increase in criminal activities “in various western and eastern countries of the world.” Ehrlich (1973) considers that unemployment has its effects on the crime rate. He outlines that the unemployment rate can be viewed as a complementary measure of income opportunities available in the legal labor market. Therefore, when unemployment rate increases, the opportunities in the legal sector decline leading individuals to associate in criminal activities. To analyze the co-integration and the socio-economic impact of unemployment and crime, we first need a review of literature concerning the study. Coomer (2003) undertook a study to assess the impact of macroeconomic factors on crime. He applied Ordinary Least Square (OLS) regression analysis to find out the results. In his analysis, he first included unemployment, poverty, prison population, high school, college education degree, and income disparities as independent variables and run the regression to understand the relationship. He then dropped the insignificant variables and rerun the regression and found that unemployment, inflation and poverty impact crime positively. With all the empirical results already found, the question, has the number of unemployed workers exacerbated the level of rising crime? This has been an issue, which have been escalating for decades with remarkable hopes of curving this trend seems a public cry. Raphael and Winter-Ebmer (2001) has shared his proposition and provided assistance with a complete analysis of the correlation of unemployment on crime. Throughout their studies, United States data were used to establish relationships between unemployment and felony offenses. After the study was completed, the results were conclusive that unemployment was correlated to property crime rates regardless of demographic and economic factors, less evidence related violent crime with unemployment. In the co-integration analysis, several variables were used in the model and accounts are usually made on which variables significantly impacts the results. Much research to this date has confirmed that unemployment affects violent crime rate where both appears to move in a positive direction. One of the variables that significantly affect the relationship between crime and unemployment is the individual’s age. It is often noted in many of the...