"... a 20 percent drop in wages leads to a 12 to 18 percent increase in youth participation in crime."
According to a recent study on Market Wages and Youth Crime (NBER Working Paper No. 5983) by NBER Faculty Research Fellow Jeffrey Grogger, there is a strong relationship between wage levels and criminal behavior, which explains why, over the past 20 years, crime rates for young men have increased while their wages have decreased. This also at least partially explains why the crime rate is higher for blacks than whites.
Grogger's main source of data is the 1980 National Longitudinal Survey of Youth (or NLSY), which canvassed youths aged 14 to 21. As he points out, unlike previous and subsequent versions of the NLSY, the 1980 survey was "augmented" to include questions about whether respondents had committed certain types of crimes and "what fraction of their income was derived from crime." In the sample that he uses for this paper, "almost everyone worked, whether they committed crime or not." Still, he concludes that "young men are quite responsive to price incentives": the more money they can make through legitimate means, the less likely they are to commit crimes. Specifically, Grogger estimates that "a ten percent increase in wages would reduce youth participation in crime by roughly 6 to 9 percent." Conversely, he calculates that a 20 percent drop in wages leads to a 12 to 18 percent increase in youth participation in crime.
Grogger goes on to compare this prediction to the actual behavior of wages and crime rates over the past 20 years. On the wage side, he cites reports from the Bureau of Labor Statistics showing that "since the mid-1970s, real wages paid to men 16-24 years old who work full time have fallen 20.3 percent." Hourly wages, "which may provide a better gauge of the labor market opportunities facing young, relatively unskilled men, behaved similarly, falling by 23 percent."
As for crime during this period, Grogger does not have the kind of detailed statistics that would allow him to precisely compare changes in wage levels with changes in income-producing criminal behavior. However, he does cite data from the Federal Bureau of Investigation showing that "between the early 1970s and the late 1980s, arrest rates for 16-to-24-year-old males rose from 44.6 to 52.6 per 1000 population, a gain of 18 percent." Thus the actual behavior of the economy accords closely with Grogger's predictions.
In examining how wage disparities may illuminate racial differences in crime rates, Grogger concludes that "the racial differential in crime rates is in part a labor market phenomenon... Blacks typically earn less than whites and this wage gap explains about one-third of the racial difference in criminal participation rates," he writes.
Finally, Grogger shows that "wages largely explain the tendency of crime to decrease with age." He notes that as people get older, their earning power increases. "The growth in market opportunities with age is largely responsible for the concomitant decrease in crime," Grogger states.