JOB MARKET PAPER
This paper shows that exposing children to illegal labor markets makes them more likely to be criminals as adults. I exploit the timing of a large anti-drug policy in Colombia that shifted cocaine production to locations in Peru that were well-suited to growing coca. In these areas, children harvest coca leaves and transport processed cocaine. Using variation across locations, years, and cohorts, combined with administrative data on the universe of individuals in prison in Peru, affected children are 30% more likely to be incarcerated for violent and drug-related crimes as adults. The biggest impacts on adult criminality are seen among children who experienced high coca prices in their early teens, the age when child labor responds the most. No effect is found for individuals that grow up working in places where the coca produced goes primarily to the legal sector, implying that it is the accumulation of human capital specific to the illegal industry that fosters criminal careers. I also rule out that effects are driven by other factors such as exposure to violence, income effects, or lower schooling. In line with the criminal capital channel, early exposure to illegal labor markets also has broader implications in terms of state legitimacy: as individuals involved in the illegal industry learn how to navigate outside the rule of law, they lose trust in government institutions as adults. However, consistent with a model of parental incentives for human capital investments in children, I find that the rollout of a conditional cash transfer program that encourages schooling mitigated the effects of exposure to illegal industries. Finally, I show how the program can be targeted by taking into account the geographic distribution of coca suitability and spatial spillovers. In sum, this paper takes a first step towards understanding how criminals are formed by unpacking the way in which crime-specific human capital is developed at the expense of formal human capital in “bad locations.”
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