Unemployment and Crime Nexus in European Union Countries: A Panel Data Analysis

Abstract

Unemployment is crucial and a chronic problem for many economies due to the its social and economic cost dimensions. The problem of unemployment, which causes economies to produce below their potential level of production, can also lead to a number of social problems. In this study, it was investigated whether unemployment had any effect on crime rates. The effect of unemployment on crime rates in EU-28 was examined for the period 1993-2016 and dataset were obtained from World Bank and Eurostat sources. There are numerous studies examining the relationship between unemployment and crime. However, with this study, it is evaluated that analyzing this relationship on EU-28 that consists of both developed and developing countries will provide general information on the relationship between unemployment and crime rates for all economies. In addition, the fact that the study was conducted with contemporary methods and datasets provides up-to-date analysis findings on the subject. In this study, second generation panel cointegration and causality tests were applied on EU-28 in order to analyse the relationship between unemployment and crime rates, and reciprocal dependence between countries. The cointegration relationship was examined by Westerlund cointegration test and causality relationship was evaluated by Panel Granger Causality Test. The Westerlund Cointegration Test’s findings show that there is a long-term relationship between unemployment and crime rates. At the same time, Panel Granger Causality Test results revealed that the causality relationship is from unemployment to crime rates. The results obtained by Panel Dynamic Least Squares method, model coefficients confirm that increase in unemployment rates positively affect crime rates. According to the results, the measures to combating of unemployment reduction can also provides a reduction in crime rates, as in the case of EU-28 countries, this also confirms that by reducing crime rates, societies will be safer and more prosperious.