Returns to education on the labor market are sizable and have been growing. But is this the case for illegitimate activities as well? Do criminals have positive returns to education? On the one hand, less educated individuals are more likely to become criminals. But this doesn’t preclude the possibility that more educated criminals be more successful.
Of course, crime is a rather loose definition that includes a variety of activities. One could expect that there is no returns to education in certain criminal activities. But what about organized crime? Setting up rackets is like extracting optimal rents, loan sharking requires risk management, and drug dealing involves setting up a supply chain. It can be reasonably expected that education pays off in organized crime.
Campaniello, Gray and Mastrobouni (2015) investigate this question using data on the Italian-American mafia. The data covers 723 members of the mafia whose information is extracted from 1960 Federal Bureau of Narcotics records. Out of these mobsters, the authors could match 318 with data in the 1940 US Census. This way information is extracted on mobsters’ (reported) income, education, housing value and so on. Similar information is also available for the mobsters’ neighbors (also from the 1940 Census) who serve as a control group.
Mobsters are indeed somewhat less educated than regular people. They have on average 7.79 years of education as opposed to 8.71 for their neighbors. The average US male aged 25-59 had 8.6 years of education in 1940. So mobsters are below average.
Why is this the case? There are several possibilities: (1) more educated people have better alternatives to make money, so they’re less likely to become mobsters; (2) the career of a mobster is certainly riskier (e.g. prison, death, injury), which makes the expected length of a mobster’s career shorter, this can reduce incentives to make long-term investments such as education.
On to our original question: are there returns to education in organized crime? Is schooling marketable in the mafia? There can be two reasons for why this would be the case. Either education serves as a signal of high ability, or education makes mobsters more productive. I’d say while the former is likely to be important in legit activities, it probably isn’t so in the mafia. But the latter is quite possible as e.g. explained at the beginning of this post: numeracy and organization skills – often learned in school – can be quite useful for certain activities the mafia is involved in.
Indeed, the authors estimate that there are significant returns to education in the mafia. For mobsters, returns range between 6.1% and 7.2%, while for their neighbors returns are between 7.4% and 8.1%.
When restricting the set of neighbors to only those whose age is within 5 years of the mobster in their neighborhood (in the baseline the maximum age gap allowed was 10 years), mobsters’ returns to education actually exceed their neighbors’.
A Oaxaca decomposition also shows that returns to education do not differ – statistically speaking – between mobsters and their neighbors.
In conclusion, it seems that at least in complex criminal organizations such as the mafia, there are significant returns to education. So significant in fact, that these returns differ hardly at all from returns to education in legitimate activities.