Crime pays poorly

Street gangs are notorious for their destruction of society. Yet, year after year, gangs recruit members. A recent study done in the U.S. attempts to understand the economic incentives of joining a gang. After analysing a highly organised gang with excellent records, the study had the following to report.

The gangs are organised in a way similar to franchises. Gang leaders pay a fee to the higher leadership, pocketing any remaining profits and risking losses. Additionally, franchisers have little contact with their peers. Individual pay among gang members ranges widely:

  • Senior gang members earn as much as $130,000 annually which is more than they could earn honestly a year (an estimated $16,000)

  • However, this is nearly 10-20 times higher than the pay of a "foot soldier" who earn less than minimum wage.

    This finding suggests the primary economic motivation for low-level gang members appears to be the possibility of rising up through the hierarchy. Because youths are not attracted to the immediate earnings of crime, a strong job market may not be an effective deterrent against gang recruiting.

    Source: Gang Economics, Economic Intuition, Fall 2000; based on Steven D. Levitt and Sudhir Alladi Venkatesh, An Economic Analysis of Drug-Selling Gang's Finances, Quarterly Journal of Economics, August 2000.

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