The Returns to Criminal Capital

Abstract

Human capital theory posits that individuals increase their labor market returns through investments in education and training. This concept has been studied extensively across several disciplines. An analog concept of criminal capital, the focus of some speculation and limited empirical study, remains considerably less developed theoretically and methodologically. This article offers a formal theoretical model of criminal capital indicators and tests for greater illegal wage returns using a sample of serious adolescent offenders, many of whom participate in illegal income-generating activities. Our results reveal that, consistent with human capital theory, important illegal wage premiums are associated with investments in criminal capital, notably an increasing but declining marginal return to experience and a premium for specialization. Furthermore, as in studies of legal labor markets, we find strong evidence that, if left unaccounted for, nonrandom sample selection causes severe bias in models of illegal wages. We discuss theoretical and practical implications of these results, along with directions for future research.