Manufacturing job loss, induced by competition with China, increased cocaine trafficking, thereby increasing violent crime in urban areas in Mexico
Conflicts involving drug trafficking organisations (DTOs) during the past decade have transformed Mexico into an epicentre of global violence, claiming over 100,000 lives since 2006 (Beittel 2017). The role of weak economic performance and consequent job loss in promoting urban violence is a major policy issue in Mexico. Consequently, the newly elected President López-Obrador is arguing for job creation as one of the pillars for reducing violent crime.
Four-fifths of homicides occur in urban municipalities in Mexico. What’s more, the world’s highest rates of violent crime are concentrated in urban areas of developing countries involved in the cocaine trade (Igarape Institute 2017). Understanding the mechanisms linking global trade competition, job loss, and violent crime in urban Mexico can provide insights into why urban areas involved in the cocaine trade are so violent across the globe.
Conflicting views on the link between jobs and violent crime
On the question of whether job opportunities influence violent crime in Mexico, Gary Becker, who pioneered the study of the economic determinants of criminal behaviour, and Joaquin “El Chapo” Guzman, named the world’s most powerful drug trafficker by the US government, would agree. In Sean Penn’s sensational interview with El Chapo, when asked about how he became involved in the drug business, El Chapo responded, “In my [geographic] area...there are no job opportunities” (Penn 2016).
Many of the existing studies on the link between job opportunities and violent crime are either in the context of strongly institutionalised countries or with a focus on rural conflicts in developing countries. These settings may not be directly relevant to the urban context in Mexico.
Furthermore, studies from these two contexts produce contradictory results: Studies from developed countries typically do not find a link between job opportunities and violent crime (see Draca and Machin 2015 for a summary), whereas studies on rural insurgency identify a strong causal relationship between economic opportunity and conflict and crime (e.g. Dube et al. 2016).
As such, we have little knowledge regarding the nature of the employment-crime link in a setting like urban Mexico. It has a developed labour market, but institutional capacity is low. DTOs provide extensive employment opportunities, thereby lowering criminal job search costs.
The study: The influence of trade competition with China
Our recent research (Dell et al. 2018) fills the gap in the literature, providing direct evidence from the urban Mexican setting. We examine how changes in urban manufacturing job opportunities resulting from international trade competition have affected drug trade-related violence in Mexico.
Trade competition, particularly with China in the US market, has been an important driver of local labour market conditions in Mexico, generating considerable popular and policy interest. It also provides plausibly exogenous variation in local employment opportunities that is uncorrelated with pre-period trends in drug trafficking and violence.
Findings: Job losses increase violent crime rates
We estimate that a one standard deviation decline in manufacturing employment from 2007 to 2010 due to trade competition increases the drug trade-related homicide rate by 5.4 per 100,000 residents per annum for the same period. For comparison, the mean drug trade-related homicide rate in 2010, a peak year of violence, was 18 per 100,000 residents. Effects are larger where international competition is likely to disproportionately affect young, less-educated men, consistent with the fact that the propensity of this subgroup to participate in the illegal sector is particularly high.
Moreover, the impacts are concentrated in municipalities with a transnational DTO presence, where a one standard deviation decline in employment increases the drug trade-related homicide rate by 30. In contrast, the impact on overall and drug-related homicides in municipalities without known DTOs initially is a precise zero. This underscores the role of DTOs in linking labour market conditions and violent crime.
Using these estimates, we conclude that if Chinese exports to the US had not changed during this period, the increase in drug-related homicides in our sample – totalling around 6,000 in 2007 and over 20,000 in 2010 – would have been around 27% lower.
Implications: Cocaine trafficking, job loss, and worker safety nets
Our results are consistent with the hypothesis that declines in the opportunity cost of pursuing criminal employment make it more lucrative for DTOs to traffic drugs that involve the extensive mobilisation of local labour. This in turn leads criminal organisations – or factions within them – to fight for control of these territories. Indeed, municipalities experiencing a decline in local employment opportunities also witness a large increase in cocaine confiscations, a reasonable proxy for cocaine traffic given that we do not find evidence of major changes in enforcement.
Cocaine, which is highly lucrative and overwhelmingly exported to the US, involves the extensive mobilisation of lookouts, the largest group of DTO employees. Interestingly, marijuana confiscations decreased in response to job losses, highlighting the potential substitutability between different types of DTO activities.
Our findings underscore the value of employing a Becker-style approach that views violent criminality through a lens that includes economic incentives. The results imply that strengthening the social safety net for workers displaced by trade competition could reduce drug trade related criminality.
Future research
To shed further light on the causes of violent crime, future research could embed a Becker-style approach within an organisational economics framework to investigate the inner workings of criminal groups. In their fight against drug traffickers, Mexico and other countries have seized a treasure trove of documents related to the internal workings of DTOs. By collaborating with economists to analyse such documents, policymakers could improve our understanding of why drug-related crime tends to be so violent in urban Latin America.
Editors’ note: A simplified version of this column in Spanish appeared in Foco Economico.
References
Beittel, J (2017), “Mexico: Organized Crime and Drug Trafficking Organizations”, Congressional Research Service.
Dell, M, B Feigenberg and K Teshima (2018), “The Violent Consequences of Trade-Induced Worker Displacement in Mexico”, American Economic Review: Insights, forthcoming.
Draca, M and S Machin (2015). “Crime and Economic Incentives”, Annual Review of Economics 7: 389–408.
Dube, O, O Garcia-Ponce and K Thom (2016). “From Maize to Haze: Agricultural Shocks and the Growth of the Mexican Drug Sector”, Journal of European Economic Association 14: 1181–1224.
Igarape Institute (2017), “The World’s Most Dangerous Cities”, Daily Chart, 31 March.
Penn, S (2016), “El Chapo Speaks”, Rolling Stone.