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What can economics tell us about crime? Economists have discovered that young people who leave school during a recession are more likely to end up in prison than those who enter the labour market when the economy is buoyant. They have also shown that people with higher levels of education are less likely to commit crime. How do economists untangle the interactions between individuals, the economy and crime?

Economics is concerned with the effects of choices made by governments, businesses and individuals. For example, how much school spending is needed, and on what, to raise students' grades? Why do competing businesses set up near, but not too near, to each other? The same approach can be used when looking at the choices around crime.

Starting with the individual, the obvious question is why do some people choose to break the law? Gary Becker, an American Nobel Prize-winning economist, is widely seen as the father of research into the economics of crime. His 1968 article - Crime and Punishment: An Economic Approach - laid the foundations for much of the economic crime research that has followed. In it, he essentially demonstrated that choosing to become a criminal or not, often comes down to the basic economic concept of rationality. In economics, rational behaviour means individuals will seek to maximise the utility, or pleasure, that they get from a purchase. For example: individuals with the same budget might value different TV functions - but they would each purchase the one that they felt would give them the maximum happiness for their cash. Similarly, Becker theorised that if a person looks at the probable costs and benefits of becoming a criminal or acting within the law and concludes that they are likely to gain more utility by committing a felony, then that is the path they may well opt to take.

"I began to think about crime in the 1960s after driving to Columbia University for an oral examination of a student in economic theory. I was late and had to decide quickly whether to put the car in a parking lot or risk getting a ticket for parking illegally on the street. I calculated the likelihood of getting a ticket, the size of the penalty, and the cost of putting the car in a lot. I decided it paid to take the risk and park on the street. (I did not get a ticket.)" as Becker put it in his 1992 Nobel lecture.

Economists factor into this "rational choice framework" a range of factors, including not only monetary gain or loss, but also things like the risk of punishment, and a person's moral standards. Essentially, though, based on Becker's insight, it is possible to assess the extent to which an individual might become involved in illegal activity by using techniques from the field of economics.

Crime and low wages

Economists at the Centre for Economic Performance (CEP) have been building on Becker's research into the impact of economic incentives and conditions on crime rates - helping to explain the causes of crime and the effect of crime-control measures.

In 2004, a paper by current CEP director Stephen Machin, co-authored with Yale economist Costas Meghir, explored how economic incentives - particularly changes in wages at the bottom end of the wage distribution - determine crime rates. By analysing data on crime, wages and criminal convictions spanning more than 20 years, the research found that a relative decline in the wages for the lowest-paid workers leads to an increase in criminal activity. Later CEP research on crime and immigration contrasted two large waves of UK immigration peaking in 1992 and 2001. It found property crime rose slightly during the first wave when asylum seekers arrived - in contrast, the arrival of EU nationals seeking work was linked to a slight reduction in crime. This revealed the potential benefits of improving the labour market opportunities for asylum seekers who face high unemployment and low wages because they are forbidden to work for the first six to 12 months of their claim, instead surviving on benefits.

This might seem predictable, but evidence of the strength of the association between the low-wage labour market and crime is important for policymakers who are looking to improve living standards and tackle lawbreaking, through for example, considering setting a national minimum wage, or the level of welfare benefits.

Broken bus window by John Chandler Cruttenden on Unsplash
Economic changes affect criminal activity. Photo by Chandler Cruttenden on Unsplash.

Changes in unemployment benefits also affect the choices of people "on the margins of crime", CEP researchers found. The introduction of the Jobseeker's Allowance in late 1996, resulted in a toughening and tightening of the benefit regime. Machin and Olivier Marie showed that in those areas more affected by the introduction of JSA, crime rose by more. It appeared that benefit cuts and sanctions had induced some people to engage in crime.

"These are important results for at least two reasons," the researchers concluded. "First, they confirm that economic incentives matter for crime...second, the results show how some government policies may have unintended consequences."

Crime and education

There are, of course, a range of other factors that can influence the likelihood of a person pursuing illicit activities. One of the areas that economists have looked at most closely is education. Across the world, the education levels of those in jail are well below those of the general population.

A 2011 paper entitled The crime reducing effect of education, found that improving education can "yield significant social benefits and can be a key policy tool in the drive to reduce crime". So, in order to slash crime rates, could governments simply seek to increase the education levels of their citizens? After all, this is tied to the classic Becker model given that those with higher levels of education typically earn more than those with fewer qualifications, so have more to lose from committing a crime (ie the opportunity cost is higher).

Answering this question, however, is not a simple task given the ethical complexities of carrying out research that might involve depriving some people of education to establish the effects on crime. Thankfully, economists have found ways around that problem.

Photo: Three policemen patrolling on the street by King's Church International on Unsplash
There are many ways to prevent crime. Photo by King's Church International on Unsplash.

A 2016 CEP discussion paper, Larrikin youth: new evidence on crime and schooling, looked at data on the criminal offending and education of individuals in Queensland, Australia. The informal Australian term "larrikin" refers to young, boisterous (and sometimes badly behaved) young people. CEP economists looked at levels of criminal behaviour in the state both before and after the implementation of the 2006 Earning or Learning reform, which increased the age at which pupils could leave compulsory education from 15 to 17. They found the reform appeared to contribute to reduced overall crime, and decreased property crime, violent crime and drug crime specifically. The reduction in criminal activity was greater for younger age groups - those still in school - than those aged 18 to 21.

This could be because education boosts young people's human capital and consequently makes working relatively more rewarding than a life of crime - or it might be that being forced to stay in education longer leads to what economists term an "incapacitation effect" - there is less opportunity to commit crime when you are kept in a classroom. A study by Brian Bell, Rui Costa and Machin, found that it was this incapacitation effect that was the primary reason for sizeable crime reductions from school dropout age policy reforms in the USA between 1980 and 2010. They found not only did leaving school at an older age mean individuals were less likely to commit crime during their formative school years when they were now in class, but were also less likely to do so in future - even when educational attainment and wages did not rise to any great extent as a result of staying in school. Such findings are valuable for governments when legislating on issues such as setting the school leaving age.

Looking more closely at the ties between crime and education can also broaden the economic discussion around controversial topics such as university tuition fees. When considering whether to attend university in England, for example, a person might weigh up the cost of taking out a large student loan against the expected benefits in future wages. For the state, however, if obtaining a degree also results in an individual being significantly less likely to commit a crime, then this also needs to be considered. How much government money might be saved in prosecution and police activity if a greater proportion of the population is educated to degree level, for example? How should that influence the level of state subsidy for higher education?

Boom or bust

Another area of interest is the extent to which macroeconomic conditions affect levels of crime. What happens to crime, for example, if people enter the labour market in a recession as opposed to when the economy is booming?

Economists have shown that recessions lead to short-term job loss, lower happiness, and decreasing income levels. But Bell, Anna Bindler and Machin used data from the US and UK to document what they termed "a more disturbing long-run effect of recessions": that young people who leave school during recessions are significantly more likely to lead a life of crime than those entering a buoyant labour market.

But why is this? In a recession, there might be fewer, generally lower-quality jobs available paying lower wages - indeed, a typical recession leads to an unemployment rate that is five percentage points higher than normal. Hence criminal activity might become, to some, relatively more economically attractive. The CEP study also cites research showing that once young people have entered the criminal world they may become increasingly further entrenched and - if they are caught and get a criminal record - also be considered less employable.

The CEP research concluded that in the US, leaving education and entering the labour market during a recession "results in a 5.5 per cent increase in the probability of being incarcerated at some point over the next two decades". The UK data suggest that entering the labour market during a recession is associated with a 5.7 per cent increase in the probability of ever being arrested at some point in life.

In both cases, the effects are even stronger for young people who leave education early and are less qualified for the labour market - backing up the findings on education.

For policymakers, these results have important implications when considering the long-term impact of recessions on young people. For those who leave school in times of economic strife, it might be that they need more help getting into legitimate work and "staying out of trouble", as the researchers put it.

Catching criminals

When there is trouble, it is the police who responsible for keeping citizens safe and bringing criminals to justice.

Answering the question of whether having more police lowers crime is tricky - because areas with higher crime rates tend to have bigger police forces. But when 10 of the 43 police forces in England and Wales were given a share of £48 million over two years to reduce street crime, it was an opportunity for CEP researchers to discover how robbery rates in these areas were affected compared to elsewhere. They found that the extra resources did lower crime. The study estimated that the extra money (about 1 per cent above the average police grant) led to 15 per cent to 17 per cent fewer robberies. This Street Crime Initiative was a highly-targeted planned programme which worked in partnership with community agencies, but a similar positive effect was found in a very different context. Following July 2005 London bombings there was a large, unanticipated increase in police presence on the streets. Mirko Draca, Machin and Robert Witt showed that in the six weeks after the attacks, a 34 per cent increase in police hours per capita in five London boroughs led to a drop of 11 per cent in crime in those areas.

And it's not just policing that reduces crime, researchers found the deterrent effect of tough sentencing led to a significant drop in riot crimes in the six months after the 2011 London riots.

Research can also help find ways to make policing as productive as possible. CEP studies have shown that new information technology did not improve to crime rates or clearance rates (when a crime is solved usually through arresting an offender) unless management practices are also altered. Another finding was that having emergency call handlers and the radio operators who assign police officers to calls in the same room and able to communicate face-to-face, can increase response times to crimes especially for urgent incidents - so may be useful even if it is rarely used. The importance of response times was explored by researchers Jordi Blanes i Vidal and Tom Kirchmaier who found that taking 10 per cent longer to respond to a crime led to a 4.7 percentage point drop in the chances of a crime being cleared. They calculated how much difference an additional officer made to response times, and thus crime clearance rates, and calculated the benefits would be equivalent to 170 per cent of her payroll cost.

Lockdowns and the law

Radical measures such as the furlough scheme, helped stem job losses in the severe recession induced by the Covid-19 pandemic in 2020. While the depth of the recession was unprecedented in modern times, it did not lead to the same levels of unemployment as in the recessions of the 1980s, 1990s or the late 2000s. But young people, especially those from poorer families, were more likely to become unemployed than those over 25 years old and this is likely to have long-term effects on their prospects.

While the resulting scarring effects on young people may not be measurable for many years, economists began measuring the immediate impacts of the pandemic on crime rates in the UK from the start.

In a 2020 paper, researchers Tom Kirchmaier and Carmen Villa-Llera explored the effects of lockdown and job losses on the kinds of crimes being committed in England and Wales. Although crime was lower in most categories, there was an increase in anti-social behaviour and drug offences.

Once again, the research lays bare the link between economic circumstance and offending. For example, areas that entered the pandemic with above-median benefit claimant rates (those claiming Jobseeker's Allowance and Universal Credit) were found to have higher violent and sexual crime rates (30 per cent above the mean) in the months post-lockdown.

The pandemic has meant that areas already characterised by deprivation are at risk of entering "a difficult loop of poverty and crime", the researchers note. An update to the work in 2022, found anti-social behaviour and drug offences returned to their lower pre-pandemic levels after lockdown, burglary rates remained low but violent offences remained at a high level. And it was areas with higher unemployment that had higher levels of crime.

Domestic abuse

As well as looking at overall crime trends, economists also interrogate data to find out how recessions and times of economic turmoil can lead to fluctuations in particular types of crime. For example, the CEP is doing important work looking at the way economic and social circumstances relate to levels of domestic violence.

During the pandemic, researchers found that lockdown had "unintended consequences on domestic abuse victimisation". By examining patterns of domestic abuse in Greater London, researchers showed that during lockdown, abuse by current partners (as well as family members) increased on average by 8.1 per cent and 17.1 per cent respectively. Meanwhile, abuse by ex-partners declined by 11.4 per cent.

"These findings show that reporting the average change in domestic abuse during lockdown can be misleading when designing a policy response," the researchers concluded. "The existing literature does not differentiate between the changes in the different types of victimisation, yet this has important implications both for policing strategy and potential long term counselling needs."

Photo: Pint glasses by Teo Do Rio on Unsplash
Alcohol consumption is linked to increases in domestic abuse. Photo by Teo Do Rio on Unsplash.

Building on this work, CEP economists analysed how incidents of domestic abuse relate to major sporting events and alcohol consumption.

By matching confidential call data from Greater Manchester police with the timing of football matches over a period of eight years, the researchers, Ria Ivandic, Kirchmaier and Neus Torres-Blas, were able to estimate the effect of those games on domestic abuse. They observed a five per cent decrease in incidents during the two-hour duration of a game. But following this initial decrease, incidents of domestic abuse started increasing - peaking about ten hours after the game. The authors state: "We find that all increases are driven by perpetrators that had consumed alcohol, and when games were played before 7pm." Unexpected game results were not found to have a significant effect.

Because the rise in domestic abuse on match days appears due to excessive alcohol consumption, the authors suggest policies aimed at delaying the start of games and restricting alcohol marketing during football games could help reduce it.

The crime scene

The economics of crime has rapidly evolved as a research field, with the number of articles published in major economics journals more than doubling in the 20 years after 1990. Some of the questions studied include: the links between crime and unemployment and between crime and wages; why does more education lead to less crime; how criminal careers are formed; and the literal question of much crime pays - although it can be hard to find good data on this. And as the interest has increased, economists have developed sophisticated methods of using data and exploiting real world policy changes as quasi experiments.

Ultimately, economists look at both the macro ways in which the economic climate contributes to an individual's likelihood of committing crime; and dig down into the detail of how certain behaviours can increase, or decrease, illegal activity. The insights gained are of vital importance, both to governments and to the people they serve.

Expert contributor: Stephen Machin
With thanks to: Chris Parr

Crime and the prices of things

Economists have shown how the price of goods such as gold jewellery or scrap metal affects their attractiveness to criminals. Researchers Mirko Draca, Theodore Koutmeridis and Stephen Machin used detailed data from police records and victim surveys showing what goods were stolen in London between 2002 and 2012 and combined it with price data from the UK's Office for National Statistics to investigate what items become more - or less - attractive to thieves during this time.

The combined number of burglaries, thefts and robberies fell by 35% during that ten-year period, and the researchers calculated that price variation accounted for approximately 10 per cent to 15 per cent of the observed drop in crime.

"One way of thinking about this is that the falling real price of loot meant that crimes that would have occurred in the past did not occur because the returns available from them significantly decreased," the researchers explain.

Similarly, a separate study found rising metal prices were linked to the spectacular rise in metal crime from the mid-2000s to 2011 that caused widespread havoc. Power and signalling cables, made of copper, were being stolen from the railway networks, public artworks were targeted for their lead, councils even reported drain covers being taken and children's playgrounds being targeted.

And the researchers also showed that it was police action and tighter regulations on scrap metal dealing that helped to weaken this link, leading to a steep fall in metal crime in the following four years despite relatively stable metal prices.