How Does the Presence of a Major Employer Affect Crime Rates?

Jeffery Green

Jeffery Green, J.D., Ph.D. (ABD) Political Science

On October 12, 2002, known locally as “Black Friday,” the Maytag Corporation announced plans to close a 1,600-worker refrigerator factory in Galesburg, Illinois. On “Black Friday,” Maytag announced it was transferring much of its production to Reynosa, Mexico, where Maytag had just opened its first non-U.S. factory. This was much like any other story of offshoring manufacturing which had occurred throughout the 1990s in the post-NAFTA era. However, what struck a chord in Galesburg was that Maytag leaving marked the proverbial final nail in the civic coffin of what had been a town who had focused on two main industries: the railroad with Burlington Northern-Santa Fe operating a massive rail yard on the South end of town, and numerous manufacturers such as Gates Rubber, Gales Manufacturing, Butler Manufacturing and Maytag, which had provided countless well-paying union jobs for people right out of high school. What stung even more was that Maytag – whose facility sat on the edge of town and acted as a metaphorical cornerstone between the corn and bean fields which lay to the south and west of town – had previously extracted a massive price from the town to stay. Making the sting much worse was that this came on the heels of Maytag constructing a brand new facility in the early 1990s with the benefit of huge tax incentives, which had smoothed over threats of the manufacturer leaving. It is estimated that the town had invested nearly $10 million into keeping the employer in the city in the previous decade.

This scenario repeated itself a few years later when the Maytag factory in Herrin, Illinois, which employed about 1,000 people; the plant in Searcy, Arkansas, which employed about 700 workers; and the Newton, Iowa, factory, which employed 1,000 workers, were all shuttered by the end of 2007. What has become of these cities, which are similar in size and suffered a similar impact in job losses due to a major employer in Maytag leaving the city? The socio-economic effects in these cities paint a varied picture of the impact left upon a community when experiencing a massive shock.

Examining the figure below (Figure 1), three of the four cities experienced moderate increases in their overall crime rate after Maytag shuttered their facilities. Herrin, Illinois, was the only city which displayed a significant increase in the overall crime rate after their facility was closed in 2007.

figure1Figure 1.

Models of criminal behavior often correlate an increase in the unemployment rate with an increase in the crime rate (Becker, 1967; Ehrlich, 1973). However, in contrast to this prediction, a large body of empirical research on the issue has shown that the effect of an increase in the unemployment rate on the crime rate is positive but small, and sometimes insignificant. Moreover, the correlation between an increase in unemployment and crime rate is sometimes even negative for some types of property crimes (see, for example, Long and Witte, 1981; Levitt, 1996; Entorf and Spengler, 2000; Rafael and Winter-Ebmer, 2001; Gould et al., 2002). The empirical relationship between unemployment and crime thus appears to be inconclusive at best. In response to this intriguing inconsistency between theory and empirical findings, sociologists proposed a new argument. In particular, Cantor and Land (1985) argue that an increase in unemployment could not only increase motivation for crime, but also decrease opportunity for crime, making the effect of unemployment on crime ambiguous.

Examining this theory in the context of these cities one can see some significant trends which indicate that the economic shock may not be contributing to crime rates. Interestingly, for at least one of the four cities under consideration – namely, Searcy, Arkansas – there is clearly no correlation between the loss of the Maytag Corporation as a major employer and crime rate. Why was Searcy, Arkansas, less affected by the sudden absence of Maytag than the other cities? The graph below (Figure 2) may help to explain this observation.

figure2Figure 2.

Firstly, it will be noted that the unemployment rate of Searcy was not drastically changed from 2007 through 2008. Perhaps the most direct explanation for this is that there were more employment opportunities in Searcy – compared to, for example, Herrin – even after Maytag was closed in this city. Searcy has a relatively large population (22,858 people in 2010), and Maytag, while important to the economy of the city, does not seem to have been so deeply embedded in Searcy’s socio-economic fabric. Furthermore, the presence of Harding University – a private college – in Searcy may also be an important factor in understanding why Searcy was not dramatically affected (in terms of crime rate) when Maytag left. It has been argued in the literature that higher education is generally correlated with a lower crime rate (see, e.g., Fajnzylber et al., 2002). Thus, it could be argued that a university located in Searcy accounts for the lack of a sudden spike in crime rate towards the end of 2007.

This same argument holds for Galesburg, Illinois, which has two colleges: Knox College and Carl Sandburg College. In Galesburg, Maytag was closed down in 2004. A close look at the figure above will show that the unemployment rate of Galesburg did not significantly alter in 2004. To be sure, many employees of Maytag were negatively impacted, but the city as a whole seems to have absorbed this economic shock – and it could be contended that the presence of two colleges played a role in minimizing this shock. Furthermore, even though the overall crime rate in Galesburg did see a modest increase in 2004, fewer robberies, burglaries, and auto thefts occurred in that year than in the previous year, suggesting a lack of correlation between unemployment and property-related crime.

The table below suggests other reasons as to why some of these cities fared better than others when Maytag was closed.

figure 3
Table 1. A look at the socio-economic demographics of four cities that were impacted by the loss of a major employer.

Notably, Herrin, Illinois, had a greater percentage of individuals below the poverty lines than the other three cities. Interestingly, as was pointed our earlier, Herrin was the only one of these four cities that saw a somewhat significant increase in crime rate in 2007 (when Maytag left). It is possible – although debatable – that Herrin’s higher percentage of individuals living below the poverty line is a factor in explaining why Herrin was more negatively affected by Maytag’s leaving.

The bulk of the evidence indicates that, for these four cities, the economic shock caused by the sudden loss of a major employer was not directly correlated with an increase in the crime rate. Put differently, there is little evidence that any increase in crime rate that occurred when Maytag left these cities is statistically significant. It is, nonetheless, patent that some cities did not see as much of an increase in crime rate as others. A close inspection of the demographics of these cities suggests possible reasons for this, such as the presence (or lack thereof) of institutions of higher education.

In summary, then, the importance of context in analyzing unemployment and crime rate cannot be overemphasized. The story of a major employer in a city suddenly leaving has played out hundreds of times over, with some coming out better in the end – and many, including the town and region, never recovering. This offers a cautionary reminder of the fluidity of the globalized economy of the 21st century, where competition to do a job is not just within your own backyard, but across the entire world.

References

Fajnzylber, P., Lederman, D., and Loayza, N. (2002). What causes violent crime? European Economic Review, 46(7): 1323-1357.

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About Jeffery Green

Jeffery Green

Jeffery Green, J.D., Ph.D. (ABD) Political Science

Jeffery is a freelance writer, researcher and consultant for technology startups and other interesting ventures.

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