The Returns to Criminal Capital

Abstract

Human capital theory (Becker 1962; Mincer 1958; Schultz 1960; 1961) posits that individuals can increase their labor market returns through investments in education and training. This concept has been studied extensively across several disciplines. An analog concept of criminal capital, while the focus of speculation and limited empirical study, remains considerably less developed theoretically and methodologically. This paper offers a formal theoretical model of criminal capital indicators and tests for greater illegal wage returns using a sample of serious adolescent offenders, many of whom participate in illegal income-generating activities. Our results reveal that, consistent with human capital theory, there are important illegal wage premiums associated with investments in criminal capital, notably an increasing but declining marginal return to experience and a premium for specialization. Further, as in studies of legal labor markets, we find strong evidence that, if left unaccounted for, non-random sample selection causes severe bias in models of illegal wages. Theoretical and practical implications of these results, along with directions for future research, are discussed.

Keywords: criminal capital, illegal earnings, sample selection, Heckman correction