Unemployment and Crime

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Is crime cointegrated with income and unemployment?: A panel data analysis on selected European countries by A.H. Baharom1 and Muzafar Shah Habibullah

ABSTRACT This paper examines the causality between income, unemployment and crime in 11 European countries employing the panel data analysis for the period 1993-2001 for both aggregated (total crime) and disaggregated (subcategories) crime data. Fixed and random effect models are estimated to analyze the impact of income and unemployment on total crime and various disaggregated categories of criminal activities. Hypothesis tests show that random effect model should be used for all (namely total crime, motor vehicle crime, domestic burglary, and violent crime) except for drug trafficking. Our results indicate that both income and unemployment have meaningful relationship with both aggregated and disaggregated crime. Crime exhibits positive significant relationship with income for all the categories except for domestic burglary, whereby it is significantly negative relationship. Crime also shows positive significant relationship with unemployment except for violent crime, whereby it is significantly negative relationship. The results also show strong country specific effect in determining the crime level. I. INTRODUCTION Criminal and violent behaviors have become a major concern in recent years across the world. More and more researches are being conducted in various parts of the world; however it is being hampered by unavailability and inconsistency of crime data. Its relationship with macroeconomic variables is very much of interest of policy makers. It cannot be argued that crime is an utmost important subject of study; the fact that it is a global phenomenon whereby most nations and its citizen’s are griped with fear due to the rising statistics of criminal activities. Crime results not only in the loss of property, lives and misery, they also cause severe mental anguish. Imrohoroglu et al. (2006) mentioned that according to the United Nations Interregional Crime and Justice and Justice Research Institute, people victimized by property crime (as a % of the total population) varied between 14.8% in New Zealand to 12.7% in Italy, 12.2% in U.K., 10.0% in U.S., and 3.4% in Japan. The possible explanations for cross country differences are many, ranging from distinct definitions of crimes and different reporting rates (percentage of the total number of crimes actually reported to the police), to real differences in the incidence of crime and even to different cultural aspects. It can even be contributed to democracy as explained by Lin (2007), whereby compared to nondemocratic governments, democratic government punish major (minor) crime more (less) and hence this crime rate is lower (higher).

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All authors are affiliated with the Department of Economics, Faculty of Economics and Management, Universiti Putra Malaysia, Serdang, 43400 UPM Selangor. The corresponding author is AH Baharom. Tel: (603) 89467710; E-mail: baharom@econ.upm.edu.my

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No matter how we look at it, it is still an utmost important subject due to its large impact on a psychological aspect as well as economical aspect. Its pernicious effects on economic activities and more generally on the quality of life of people contribute to the emerging fact that crime is merging as a priority in policy agendas worldwide. Due to the complexity of the phenomenon and lack of consensus among policy makers or scholars, research on this issue continues to be conducted in many areas. Unemployment is another prime concern for policy makers and it is often thought to be closely related with crime. Are they related? If yes, is it association or causation relationship? Many researches have attempted to answer the golden question; at best the results are mixed. Agell and Nilsson (2003), and Papps and Winkelmann (1999) are examples of studies which found strong positive relationship between unemployment and crime, while...
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