Local Labour Market Effects of Unemployment on Crime Induced by Trade Shocks

This paper analyses the effect of a long-term change in unemployment on crime in the US local labour markets (1990-2007). During these last two decades, the US economy has experienced severe structural changes caused by international trade shocks, and China has played a crucial role as a major global exporter. The rapid growth of US exposure to China products triggers the increase in US local unemployment rates. This study documents whether this increasing exposure to Chinese competitiveness has indirectly contributed to the change in the propensity to commit crime through the displacement of workers. I exploit the cross-market variation in import exposure stemming from initial differences in industry specialisation to instrument the unemployment rate. The empirical evidence suggests that a one per cent increase in unemployment rate, induced by a change in Chinese import products, leads to almost a one per cent rise in the total crime rate.