Job Displacement, Crime, and the Value of Unemployment Insurance in the U.S.

• In Event: Work, Crime, and the Consequences of Criminal Records: Causal Evidence on Labor Market Impacts

Abstract

This paper studies the effects of involuntary job loss on criminal behavior and the extent to which unemployment insurance (UI) mitigates those effects. We combine administrative tax records, unemployment insurance information returns, and criminal legal system records to compare workers affected by mass layoff events in the United States to otherwise similar workers at the same firms who were not displaced. We show that job loss produces large and persistent earnings declines alongside meaningful increases in criminal legal system contact, with especially pronounced effects on felony charging outcomes. These patterns suggest that the financial disruption associated with displacement can spill over beyond standard labor market outcomes and shape socially costly forms of behavior.

We then examine whether the design of unemployment compensation mediates these post-displacement effects. In particular, we study three dimensions of UI generosity and access: replacement rates, benefit duration, and the ease with which displaced workers successfully claim benefits. To isolate policy-driven variation in replacement rates, we use a simulated instrument approach that maps state-year UI rules onto a fixed national sample of workers. We find that job losers exposed to more generous replacement rates exhibit lower offending following layoff, with the clearest reductions appearing in more serious criminal outcomes, while experiencing only modest changes in subsequent employment. These results are consistent with UI reducing the acute liquidity shocks and short-run financial strain that follow separation.

We also study access to UI through employer filing environments. Some employers appear to create environments in which displaced workers are substantially more likely to successfully file for benefits. Exploiting this variation, we find that moving to an employer environment with a one-standard-deviation higher post-layoff filing tendency increases successful claiming and reduces offending after job loss. Together, these findings suggest that the protective effects of UI depend not only on formal policy generosity, but also on whether workers can actually access benefits when they need them.

Finally, we interpret our estimates through a planner’s problem that incorporates crime as a social externality. Standard evaluations of unemployment insurance typically focus on consumption smoothing, job search, and employment effects. Our results show that this framework is incomplete. UI policies that increase liquidity at the moment of separation can generate welfare gains by reducing criminal behavior and the broader social costs it imposes. Accounting for crime externalities therefore increases the estimated value of unemployment insurance and highlights the importance of program design at the point of job loss.

Author

• Benjamin David Pyle, Boston University
  Presenting Author