The Economic Burden of Crime: Evidence from Mexico

Andrea Velasquez, Duke University

Drug related violence between organized crime groups in Mexico has been amplified recently by the government’s effort to combat their illicit activities. Evidence suggests that during periods of rising violence, civilians pay a steep price for these disputes. This paper investigates the impact of this amplified environment of violence on individual labor outcomes and household's expenditure behavior. The Mexican Family Life Survey offers a unique opportunity to address this research question as the first follow-up was conducted during low levels of violence, while the second follow-up took place during years of greatly elevated violence. This data allows us to control for unobserved heterogeneity at the individual level by comparing the outcomes of the same respondent in each period, while additionally controlling for a rich set of time-varying individual characteristics. Preliminary results indicate that rising homicide rates decrease earnings, reduce the labor market participation of men, and especially harm the self-employed.