Formal Employment and Organised Crime: Regression Discontinuity Evidence from Colombia

Abstract

Safety net programs, common in settings with high informality like Latin America, often use a means test to establish eligibility. We ask: in settings in which organized crime provides lucrative opportunities in the informal market, will discouraging formal employment via benefits eligibility criteria increase criminal enterprise activity? We link administrative socioeconomic microdata with the universe of arrests in Medellín over a decade, and exploit exogenous variation in formal-sector employment around a socioeconomic-score cutoff, below which individuals receive generous benefits if not formally employed. Regression discontinuity estimates confirm this policy reduced formal-sector employment and generated a corresponding increase in arrests associated with organized crime. We do not find increases for crimes unlikely to be associated with organized entities, such as crimes of impulse or opportunity. Effects on arrests are strongest in neighborhoods where organized crime is most prevalent.