Impact of Unemployment on Crime in Europe

Abstract

This study discovers how unemployment rate explains the changes in the crime rate tendency in Europe by the two-stage-least square regression. The crime rate in the Economic and Monetary Union (EMU) area is found evidently more sensitive to unemployment than the non-EMU countries. The adoption of a common currency also strengthens the connections of the criminal problem among the EMU countries. We found the seriousness of the endogenous bias involved using the OLS methodology, so previous findings on the small effect of unemployment on crime rate obtained by employing the OLS methodology could be unreliable. Empirically, a one-percentage-point increase in unemployment increases the property crime by nearly 9% on average. The large unemployment effect implies that the increase in the unemployment rate that occurred after the financial crisis in 2008, followed by the European sovereign-debt crisis, may account for the trending increasing tendencies of the crime rate in Europe. The high unemployment effect revealed markedly different policy implications than those that have previously been considered in the literature. These findings suggest that the key determinants for governmental authorities in the EMU area successfully mitigating crime would greatly depend on how the governments resolve their economic recession.

Keywords

• Crime rate
• Unemployment rate
• Property crime
• Common currency