IMF Working Papers

This paper explores how fluctuations in crime rates influence labor market outcomes in Mexico. Using detailed survey data and an individual-fixed effect estimation, the analysis reveals distinct gender dynamics in response to rising homicide rates. Men are more likely to exit the labor market due to reduced demand for their labor, while women increasingly join the workforce, mainly in the informal sector, to offset this decline. This outcome is largely driven by the presence of drug trafficking organizations, which primarily employ men in their operations. Escalating violence also increases labor mobility, leading to higher job separations, particularly among women seeking safer employment. Our results highlight that while increasing crime in the form of homicides may not induce large changes in the aggregate level of employment, there is evidence of labor reallocation across and within sectors. This suggests an increase in labor market misallocation.