Violence Without Recession: How Crime Reallocates Labor in Mexico’s Economy

Research from the IMF authored by Lorenzo Aldeco Leo, Matteo F. Ghilardi, and Hugo Tuesta, and produced under the Western Hemisphere Department of the International Monetary Fund in collaboration with researchers at Banco de México, sheds powerful new light on the economic toll of violent crime. Drawing from more than 16 million individual-quarter observations from Mexico’s national employment survey (ENOE) between 2005 and 2019, the study offers a comprehensive and statistically robust look at how rising homicide rates, largely driven by the presence and expansion of drug trafficking organizations (DTOs), are reshaping labor market dynamics across the country. Far from just a security concern, homicides emerge here as potent economic disruptors, influencing not only employment but also who works, where, and under what conditions.

When Men Exit, Women Step In

One of the most striking findings in the report is the asymmetrical response of men and women to rising local homicide rates. As homicides surge, men are increasingly pushed out of the labor force, largely due to a negative demand shock: employers appear more hesitant to hire men, who are disproportionately affected by or associated with DTOs. This association can be due to victimization risks or fears of criminal entanglement. On the flip side, women enter the labor force in greater numbers, primarily to offset the economic vacuum created by male exits. This pattern, which the authors describe as a reversed “income-compensation mechanism,” sees women entering often precarious and informal employment to stabilize household incomes.

The net result of these shifts is that aggregate employment figures remain deceptively stable. Underneath the surface, however, the labor market is undergoing a substantial internal transformation. Informal employment among women rises, while male employment opportunities decline, particularly in high-violence, DTO-dominated municipalities. The research quantifies this transformation: during the period studied, a 247 percent increase in homicide rates correlates with a 0.58 percentage point drop in male labor force participation and a 0.61 percentage point rise among women. In areas with a strong DTO presence, this female labor force boost accounted for nearly 27 percent of the total rise in female participation, underscoring the heavy economic burden women shoulder amid chronic violence.

Informality: A Costly Coping Mechanism

Though women’s entry into the workforce might seem like a silver lining, the nature of their employment raises red flags. Most of the female labor force growth takes place in the informal sector, which offers low wages, no job security, and limited access to benefits such as healthcare or pensions. The authors stress that this shift into informality represents not just a survival strategy but also a major source of labor market misallocation. As workers settle into roles that neither match their skills nor offer upward mobility, overall productivity suffers.

This informalization is not a temporary trend. The study finds that it often persists, particularly as women become primary or secondary earners in households where male participation has declined. The research also dispels the assumption that fear alone is driving labor market behavior. Interestingly, neither men nor women frequently cite personal safety as a direct reason for labor market exit. Rather, decisions appear motivated by broader economic constraints and perceptions of opportunity, suggesting that crime indirectly reduces economic participation by reducing the attractiveness or feasibility of work, particularly for men.

Job Separations: Women Bear the Brunt

In addition to participation rates, the paper examines job separations, another crucial labor market indicator. Rising homicide rates are associated with increased job turnover, especially among women. These separations are overwhelmingly driven by supply-side concerns: workers, particularly women, voluntarily leave jobs due to concerns about safety, deteriorating working conditions, or insufficient pay. Demand-side separations, like layoffs or contract non-renewals, actually decline slightly, reinforcing the view that workers are preemptively moving away from roles perceived as risky.

The sectoral data is especially telling. Increases in violence trigger heightened job movement in the service and trade industries. Women gravitate toward service-sector jobs, which may offer a perception of greater safety or flexibility. Men show more movement within the trade sector. These transitions reflect a reshuffling of labor in response to violence but come at a cost. Workers are often forced to choose between security and skill alignment, resulting in inefficient job matches that undermine long-term productivity and economic resilience.

Violence as an Invisible Tax on the Economy

The overarching conclusion of the study is sobering: homicides may not drastically reduce overall employment levels, but they distort labor allocation, suppress productivity, and deepen inequality. Male labor demand falls in areas plagued by DTOs, while female labor supply rises, largely in low-productivity, informal roles. The result is a mismatch between skills and employment, with fewer opportunities for meaningful economic advancement.

This labor market misallocation is not just a symptom of violence but a mechanism through which crime perpetuates poverty and underdevelopment. As workers increasingly prioritize non-wage factors such as safety over job quality, the economy suffers from diminished efficiency. The findings echo development theories from scholars like Banerjee, Duflo, Hsieh, and Klenow, who argue that misallocation of resources, be it capital or labor, is a central driver of cross-country income disparities.

The IMF and Banco de México’s research makes a powerful case: tackling violent crime is not just a matter of public safety, it is a fundamental prerequisite for economic growth and labor market health. By illuminating how homicides reshape work in Mexico, the study urges policymakers to treat crime not only as a justice issue, but as an economic one. Without addressing the structural violence permeating many Mexican communities, hopes for labor market efficiency and inclusive development will remain out of reach.