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* We thank Gustavo Adler, Swarnali Ahmed Hannan, Camila Casas, Gaston Gelos, Metodij Hadzi-Vaskov, Niels-Jakob Hansen, NilsLehr, Rafael Machado Parente, Alejandrina Salcedo, Ana María Trujillo, as well as seminar participant at Banco de México, the IMFIMF Working PaperWestern Hemisphere DepartmentLabor Market Consequences of Homicides:Evidence from MexicoPrepared by Lorenzo Aldeco Leo, Matteo F. Ghilardi, and Hugo TuestaAuthorized for distribution by Gustavo AdlerMay2025IMF Working Papersdescribe research in progress by the author(s) and are published to elicitcomments and to encourage debate.The views expressed in IMF Working Papers are those of theauthor(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.ABSTRACT: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 genderdynamics in response to rising homicide rates. Men are more likely to exit the labor market due to reduceddemand for their labor, while women increasingly join the workforce, mainly in the informal sector, to offset thisdecline. This outcome is largely driven by the presence of drug trafficking organizations, which primarily employmen 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 theform of homicides may not induce large changes in the aggregate level of employment, there is evidence oflabor reallocation across and within sectors. This suggests an increase in labor market misallocation.J16; J21; N36Crime; Labor Markets; Gender; Mexico.lorenzo.aldeco@banxico.org.mxmghilardi@imf.orghtuesta@imf.org for discussion, comments, and suggestions.JEL Classification Numbers:Author’s E-Mail Address: Keywords: Labor Market Consequences ofHomicides:Evidence fromMexicoPrepared by Lorenzo Aldeco Leo, Matteo F. Ghilardi, and Hugo Tuesta 1IntroductionThe relationship between crime and economic performance is a core issue in development eco-nomics, particularly as crime undermines welfare and distorts market efficiency. Crime generatesdirect and indirect economic costs, such as increased security expenditures, reduced productivity,and distortions in firm and household behavior. Studies across various contexts have highlightedhow crime negatively influences economic indicators such as foreign direct investment (FDI), firmdynamics, and labor market participation.1which crime affects economic outcomes, altering both labor demand and labor supply. On thesupply side, fear of crime and increased insecurity can deter participation, particularly amongvulnerable populations.2relocate operations, or experience lower labor productivity.3ing in different settings illustrate the context-dependent nature of crime’s impact on labor markets,emphasizing the need for an analysis to uncover the mechanisms driving these outcomes.In Mexico, homicides constitute a defining feature of the crime landscape, with rates amongthe highest in the region and remaining persistently elevated since 2007.4with escalating conflicts among drug-trafficking organizations (DTOs), particularly following mil-itary interventions aimed at dismantling these groups (Castillo et al., 2020; Dell, 2015). The frag-mentation of DTOs has intensified competition for illicit trafficking routes, exacerbating violenceand its economic fallout.5economic agents, acting as employers in regions where legal employment opportunities are lim-ited (Dell et al., 2019, Prieto-Curiel et al., 2023). This paradox underscores the complex interactionbetween violence and economic activity in Mexico, where homicides disrupt labor markets, andimpose considerable costs on households and firms.This paper examines the labor market effects of escalating homicide rates in Mexico, by provid-1For instance, Tella et al. (2010) underscore that crime constitutes a "first-order impediment to development" inLatin America, where its prevalence stifles long-term growth and exacerbates inequality. Empirical evidence suggeststhat crime also deters human capital investment, disrupts market competitiveness, and generates persistent regionaldisparities, thus limiting opportunities for economic mobility (Gaviria and Velez, 2001). Rozo (2018) finds that higherlevels of violence have been shown to negatively impact aggregate firm dynamics in Colombia.2For example, Mishra et al. (2021) find that female labor force participation (LFP) declines significantly in high-crimeregions of India, while Field and Vyborny (2022) observe similar impacts on job search activity in Pakistan. In contrast,Fernández et al. (2014) provide evidence of positive labor supply effects in Colombia, suggesting that crime may forceindividuals into the labor market to compensate for lost household income.3See Bisca et al. (2024) for