Crime and Employment Destruction in Mexico: Do Firms Size and Location Matter?

Abstract

We study the effects of homicide and kidnapping rates on firms' employment losses, identifying metropolitan and non-metropolitan localities in Mexico. We use a panel dataset for 32 sub-national states organized on a quarterly basis over the period 2011:Q1-2016:Q4, decomposed by locality population size and firm workforce size, including self-employment, micro, small, medium and large firms. Our results indicate that crime has a negative impact on employment across all localities but has a robust negative effect on employment in micro and small firms in metropolitan areas and non-metropolitan areas. An increase of one standard deviation (SD) in the homicide rate in each locality destroys 319,542 jobs countrywide, while an equivalent increase in kidnapping implies a loss of 560,705 jobs. On including in the analysis locality population size in the considered dimensions, this increase in homicide implies a reduction of 181,988 and 99,184 jobs in metropolitan and non-metropolitan areas, whereas for an equivalent increase in kidnapping the losses are 387,547 and 256,969 jobs, conditional on their respective model. Our results provide evidence of the heterogeneous damage of crime to employment, conditional on firm´s location and workforce size.

Characterising Crime Incidence in Mexico: A Hierarchical Linkage Clustering Analysis

“…The importance in terms of the relative weight of homicides shown in our analysis corresponds to Torres et al (2015), who relate them to the negative effects on private investment; Cabral et al (2018) document an inverse relationship with FDI. Meanwhile, Moreno and Saucedo (2020) show that homicide and kidnapping threaten employment. In Mohammed and Baiee (2020), there is also evidence in favour of the relative importance of homicides, assault by threat, and shooting as major crimes.…”

“…Several studies have documented how criminal activities have decimated Mexico's economic life through different mechanisms. For example, the decrease in productivity and competitiveness of companies (González, 2014;Soria, 2017;Saucedo & Berry, 2019), effects on the labour plane -a contraction of employment and increase in inequality (Cortés et al, 2018;Moreno & Saucedo, 2020), a decrease in salary (Altindag, 2012;Velázquez & Lozano, 2019), increase in absenteeism (González, 2014). The reduction of incentives for private investment also has been identified because of spreading crimes in Mexico (Torres et al, 2015;Pan et al, 2012).…”

“…On the other hand, several studies point out the geographical heterogeneity in the incidence of criminal activity, representing significant differences between the states or regions in a given country (Cabral et al, 2018;Saucedo & Berry, 2019;Moreno & Saucedo, 2020;Mohammed & Baiee, 2020;Abrams, 2021;Bernardo et al, 2021).…”