Reclaiming Neighborhoods: Violent Crime and Business GrowthJob Market Paper
One in four firms in Latin America identifies crime as a major constraint on its operations. Can reducing violence help businesses grow? I study Rio de Janeiro’s Pacifying Police Units, one of the largest policing interventions in the developing world, which sharply reduced violence in some of the city’s most violent neighborhoods. Linking its staggered rollout to geocoded administrative records for formal establishments and workers, I compare firms in earlier- and later-treated areas. Four years after treatment, incumbent firms employed 24 percent more workers and paid 26 percent higher wage bills. Gains were concentrated among small firms, and firm entry also rose. Customer-facing firms showed no clear advantage, which argues against customer inflows as the main explanation. Among small incumbents, higher-paying firms expanded more, new hires were more educated and experienced, and wages within firms showed no detectable increase. Under benchmark assumptions, a model of local labour markets attributes most of the small-firm employment response to improved access to workers, with a smaller contribution from reduced crime-related production costs. These findings suggest that public security interventions can help small firms grow, particularly by widening the pool of workers willing to work in previously unsafe areas.