Lin, Ming-Jen. 2008. “Does Unemployment Increase Crime? Evidence from U.S. Data 1974–2000.” Journal of Human Resources 43(2): 413–436.
OLS may understate the effect of unemployment on crime because of the endogeneity problem (Raphael and Winter-Ember 2001). In this paper, we use changes in the real exchange rate, state manufacturing sector percentages, and state union membership rates as novel instrumental variables to carry out 2SLS estimations. We find a one-percentage-point increase in unemployment would increase property crime by 1.8 percent under the OLS method, but that the elasticity goes up to 4 percent under 2SLS. The larger 2SLS effect has significant policy implications because it explains 30 percent of the property crime change during the 1990s.
Ming-Jen Lin is an associate professor at the Department of Economics, National Taiwan University. The author thanks Steven Levitt, David Mustard, Tom Miles, Mark Duggan, and two anonymous referees for their comments. Financial support from National Science Council, Taiwan is greatly acknowledged. The data used in this article can be obtained beginning October 2008 through September 2011 from Ming-Jen Lin, Department of Economics, National Taiwan University, mjlin@ntu.edu.tw.