Drug-related violence in Mexico and its effects on employment

Abstract

This paper examines the effects of drug-related crimes on employment in Mexico at the state level during the period 2005–2014. Results indicate that such crimes have a negative impact on employment. We are able to decompose employment into low-skilled and high-skilled employment, and results are heterogeneous among both types of employment. Results indicate that a 10% increase in drug-related crimes reduces total employment up to 0.9%. Additionally, our empirical findings indicate that high-skilled employment is more sensitive to an increase in drug-related violence than low-skilled employment. Low-skilled employment decreases up to 0.3%, while skilled employment declines up to 1.5% when drug-related violence increases by 10%. It is also found that skilled employment responds at an increasing rate when drug violence skyrockets. We also find that a rise in drug-related crimes increases wages as a mechanism to retain jobs in violent places.