Job Displacement and Crime: Evidence from Danish Microdata

This paper matches a comprehensive Danish employer-employee data set with individual crime information (timing of offenses, charges, convictions, and prison terms by crime type) to estimate the impact of job displacement on an individual’s propensity to commit crime. We focus on displaced individuals, i.e. high-tenure workers with strong attachment to their firm, who lose employment during a mass-layoff event. Pre-displacement data suggests no evidence of endogenous selection of workers for displacement during mass-layoffs: displaced workers’ propensity to commit crime exhibits no significantly increasing trend prior to displacement; and the crime rate of workers who will be displaced is not significantly higher than the crime rate of
workers who will not be displaced. In contrast, displaced workers’ probability to commit any crime increases by 0.52 percentage points in the year of job separation. The effects are driven by the propensity to commit property crime, which increases by 0.38 percentage points, or about 26% of the population-wide average. The substantial post-displacement earnings losses, coupled with the effects on property crime, are consistent with Becker’s (1968) economic theory of crime. Marital dissolution is more likely post-displacement, and we find small intra-family externalities of adult displacement on younger family members’ crime. The impact of displacement on crime is stronger in municipalities with higher capital and labor income inequalities.