The consequences of this new violence’s dynamic shaped many possible channels through which the economy and, therefore, the labor market could be disturbed. Given that the impact of violence on emotions is pernicious and the influence of fear distorts the perception, altering the decision-making processes of individuals (Becker and Ru-binstein, 2011), the increased rate of violent crime may influence individuals to modify their labor decisions due to the fear of being physically harmed or financially damaged by criminal groups operating in their community. Victimization surveys in Mexico corroborate this behavior by revealing that the percentage of adults feeling their state of residence is unsafe increased from 5.4% in 2004 to 65% in 2009, while the per-centage of people considering their workplace unsafe also rose from 13.7% to 19%
(Benyishay and Pearlman, 2013).
These increases in the sentiment of victimization could increase the Mexican drug war costs if it triggers behavioral changes like reducing worked hours or school atten-dance. For instance, the National Survey on Insecurity (ENSI) for the year 2009 unveils that half of the individuals stopped going out during nighttime due to increased vio-lence, while 15% stopped using public transportation, eating out, and attending public events (Benyishay and Pearlman, 2013).
3.2 Labor Market Structure
The Mexican labor market is defined by a stable and relatively low labor force participa-tion compared to other Latin American countries. Just in 2020, 63.6% of the total pop-ulation between 15 and 64 years-old were participating in the labor force (STPS, 2020).
Moreover, the unemployment rate has been somewhat low during the last two decades, reaching 3.4% by the end of 2019, 1.9% lower than the world’s average, and 4.6% lower than Latin American’s average (ILO, 2020).
Furthermore, employment and labor force participation differ significantly between men and women and among age groups. Labor participation for women between 20 and 64 years-old has increased over the last decades, from 66.52% in 2000 to 71.5%
in 2019. However, it remains below the men’s participation rate of 82% in 2019. The employment rate for women within the same age group is 44.64%, also lower than the 77.1% for men in 2019 (Henry and Fraga, 2019), while men’s earnings were 18.8%
higher than women’s (ILO, 2020). Additionally, in 2018, the gender wage gap was more pronounced for self-employed workers at 44%, and highly educated individuals with a 33% differential (OECD, 2020).
Despite the relatively low unemployment rate, Mexico does not offer a national sys-tem of unemployment insurance. Many scholars recognize this factor as a potential trigger of informality. In this sense, informality has been a significant issue in Mexico
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over the last two decades. In 2019, approximately 57% of the labor force worked in the informal sector, just slightly above Latin America’s average and considerably exceeding the informality levels in developed countries. In Mexico, employment in the informal sector is extensive among the general society; while it is most prevalent in low-skilled workers and vulnerable people, educated or well-payed workers also participate in the informal labor market (OECD, 2019).
Moreover, Mexican states present notable differences in employment and informal-ity rates. In 2017, the unemployment rate fluctuated between 7.3% in Tabasco to 1.4%
in Guerrero and other southern states. Informality follows the same pattern. It varies considerably from low rates in the northern states of Chihuahua and Coahuila (37%
each) to higher rates in the central and southern states of Guerrero and Chiapas (78%
each) (Romero and Ortiz, 2019).
Hence, informality is widely found among people of different educational levels, in all geographical areas, and across jobs with low and high wages. This wide-reaching predominance displays a duality in the labor market that permeates the whole Mexican economy by reducing productivity and economic growth (Alvarez and Ruane, 2019). In-formal employment can be recognized as a problem since it also aggravates inequality and encourages social segregation (ILO, 2015). For instance, a person informally work-ing does not have sufficient job security nor access to social benefits and does not re-ceive proper training opportunities at their workplace (UNDESA, 2020).
Despite specific arrangements or employment contracts, people in Mexico tend to work long hours. Mexican workers invest around 2,137 hours per year working, 385 hours more than the OECD average in 2019. Still, the annual average wage is compar-atively low (around USD 17,000 PPP in 2019) and has remained constant during the last two decades (OECD, 2019). Additionally, the average wage varies notably among states. Workers in Mexico City and northern states perceive monthly wages ranging between MXN 7,500 and 8,500 (Mexican pesos), while the average monthly wage for southern states like Chiapas and Oaxaca remains under MXN 4,500 (OECD, 2019).
Differences between wages in rural and urban areas also prevail, where average wages are three to four times higher for individuals working in cities (Romero and Ortiz, 2019).
4 Data and Sample
For this study, I collect data from four sources. First, I use criminal activity information from the National Institute of Statistics and Geography (INEGI) and the Office of the Mexican Attorney-General (PGR). I use the INEGI monthly reports on the number of intentional homicides in Mexico at a state level, and the PGR data for the number of
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violent burglary, robbery, and aggravated assault cases, all of them recorded annually at a state level. I use the total number of the abovementioned crimes per state in conjunc-tion with populaconjunc-tion data from the Naconjunc-tional Populaconjunc-tion Council (CONAPO) to create an annual violent crime rate per 100,000 people.
Then, I link the previously constructed violent crime rate to the MxFLS, a rich lon-gitudinal survey representative of the Mexican population that compiles broad demo-graphic and socioeconomic characteristics started in 2002. The MxFLS ideally captures a general picture of Mexico’s environment by recording information surrounding the sudden increase in violent crime. The first follow-up of the survey occurred between 2005 and 2006, a time with relatively low levels of violence, while the second follow-up was conducted from 2009 to 2013 when the levels of crime spread exponentially.
4.1 Measuring Violence
For this empirical exercise, I use data regarding four types of violent crime. First, I build a state-level rate of intentional homicides per 100,000 people by collecting the reported annual numbers of intentional homicides from INEGI and using the total population figures from CONAPO. Then, using data from PGR and CONAPO, I constructed a rob-bery rate per 100,000 people by combining annual violent burglary cases and robrob-bery cases in each state as a supportive measure of violence. Similarly to the robbery rate, I used annual aggravated assault cases and population data to create an aggravated as-sault rate per 100,000 people for each state. Lastly, I combined the three previously constructed violence rates to create a total crime rate to serve as the principal indicator of violent crime.
In this study, I use the definition of violent crime haped by the U.S. Department of Justice.6 Thus, violent crime refers to those offenses which involve force or threat of force against a victim and is composed of four offenses: murder and nonnegligent manslaughter, forcible rape, robbery, and aggravated assault (Douglas et al., 2013).
Three out of these four criminal offenses are used to construct the total crime rate mentioned before,7 resulting in a more comprehensive indicator of the drug violence behavior.8
6Although the way of classifying the concept of violent crime varies among countries.
7In this study, I do not include the forcible rape rate, although it is part of the definition of violent crime. I omit it because the triggers and mechanisms of this type of offense are different from those in drug-related violent crime.
8The homicide rate expressed as the number of intentional deaths per 100,000 habitants has been the preferred measure of violence in the literature. The finality of death and the difficulty of “hiding a body” secure the homicide rate as an indicator with a small underestimation problem (Shrader, 1999).
However, a measurement error is still possible, and the homicide rate could bias any empirical estimation if homicide cases are not accurately reported to the authorities.