Firms and Labor in Times of Violence: Evidence from the Mexican Drug War

Violence in Mexico has reached unprecedented levels in recent times. After the government crackdown on drug cartels, nation-wide homicides almost tripled between 2006 and 2010. Using longitudinal plant-level data and information on plants' detailed product portfolios and technology, this paper studies the impact of violent conflict on firms, exploiting this period of heightened violence in Mexico – commonly referred to as the Mexican Drug War. The results show significant negative impact of the surge in violence on plants' output, product scope, employment and capacity utilization. Violence is felt across all plants as a negative blue-collar labor supply shock, leading to significant decline in skill-premium. The effect of violence outbreak on output and plants' survival likelihood is very heterogenous, increasing with reliance on local demand, local sourcing and with intensity of female employment. The estimates show that the Drug War accounted for sizable portion of the aggregate decline in manufacturing employment over 2007-2010 in Mexico.

Speaker:

Jun.-Prof. Dr. Hale Utar, Universität Bielefeld