'Returns to education in criminal organizations: Did going to college help Michael Corleone?' by Nadia Campaniello, Rowena Gray and Giovanni Mastrobuoni in (2016) 54 Economics of Education Review comments
Is there any return to education in criminal activities? This paper is one of the first to investigate whether education has not only a positive impact on legitimate, but also on illegitimate activities. We use as a case study one of the longest running criminal corporations in history: the Italian-American mafia. Its most successful members were capable businessmen, orchestrating crimes that required abilities that might be learned at school: extracting the optimal rent when setting up a racket, weighting interests against default risk when starting a loan sharking business or organizing supply chains, logistics and distribution when setting up a drug dealing system. We address this question by comparing mobsters to a variety of samples drawn from the United States 1940 Population Census, including a sample of their closest (non-mobster) neighbors. We document that mobsters have one year less education than their neighbors on average. We find that mobsters have significant returns to education of 7.5–8.5% , which is only slightly smaller than their neighbors and 2–5 percentage points smaller than for U.S.-born men or male citizens. Mobster returns were consistently about twice as large as a sample of Italian immigrants or immigrants from all origin countries. Within that, those charged with complex crimes including embezzlement and bookmaking have the highest returns. We conclude that private returns to education exist even in the illegal activities characterized by a certain degree of complexity as in the case of organized crime in mid-twentieth century United States.
Additional years of education are known to increase earnings in legitimate labor activities. But, what about illegal ones? In this study we will not discuss the activities of common criminals. Our focus is professional criminals who belonged to one of the most successful and long-lasting criminal organizations: the Italian-American mafia between the 1930s and the 1960s. We match a list set up by the Federal Bureau of Narcotics (FBN) of 712 mobsters belonging to the Italian-American mafia with the 1940 United States (U.S.) Census of Population. This gives us information about income, housing values, education, job characteristics, as well as the precise address of residence for each individual. We create a sample of white, male, similarly aged, neighbors of these mobsters that serves as the closest comparison group and we also present estimated returns to education for other samples drawn from the 1940 Census, including all working-age white men; whites born in the U.S.; all U.S. citizens; all immigrants; all Italian immigrants; and second-generation Italians (who are born in the U.S. but have at least one parent born in Italy).
Economists have shown that increased levels of education reduce criminal participation. This implies that education is valued more by legitimate firms than by illegitimate ones. This is consistent with our first finding: mafia mobsters have on average one less year of education when compared to the sample of neighbors.
But, this finding does not imply that annualized returns to education are smaller for organized crime members than for ordinary workers. Criminal careers are known to start very early and are likely to be interwoven with schooling choices. Individuals who choose to be part of the mafia are likely to trade off income and power for risk of injury, prison, and death. This alone, without the need of lower returns to education, would predict a lower investment in education as there would be fewer years of working life in which to recoup foregone wages (Mincer, 1974). Indeed, economic theory predicts that individuals with lower (working) life expectancy should have larger annualized returns to education.
This is true unless the extra schooling is not marketable. So, is schooling marketable in the mafia? This question really involves the mafia’s complex business model and the link between human capital and schooling. Let us start with the latter. If one takes Bowles and Gintis (2002)’s view that schools “prepare people for adult work rules, by socializing people to function well (and without complaint) in the hierarchical structure of the modern corporation” it would seem that schools are an ideal training environment for aspiring mobsters.
While we do not fully embrace this view of schooling, many of the skills students acquire at school are likely to be useful when setting up a racket (i.e. extracting the optimal rent), a loan sharking business (i.e. weighting interests against default risks), a drug dealing system (i.e. setting up supply chains), etc. It is ultimately an empirical question as to whether the returns to education in the mafia are similar to the ones ordinary workers enjoy. This comparison, we believe, is also informative about the workings of the mafia. The results presented below hold, we argue, for criminals engaged in complex criminal activities, but may not be more generally true of petty criminals or criminals operating at the lowest levels of criminal organizations, whose everyday tasks are much simpler and do not involve the planning, risk evaluation, and communication skills needed of those higher in the network. We are therefore providing a counterpoint to Carvalho and Soares, and Levitt and Venkatesh (2000), who study the characteristics of regular gang members.
We estimate Mincer-type regressions using log income and log housing value as the main outcomes. The main independent variable of interest is years of education. We present results for the mobster sample and compare to other reasonable comparison groups: all men; U.S. citizens; immigrants; Italian immigrants and second-generation Italian men; and a sample of mobster neighbors, who lived on the same block (and usually the same exact street) in 1940.
We find large returns to education within the mafia, no matter the model, or the outcome variable, that we use. This shows that private returns to education exist not only in legitimate but also in the illegitimate activities that imply a sufficient degree of complexity. Mobster returns (in terms of income) to a year of schooling are around 7.5–8.5% , compared to 9–10% for the neighbor sample and 10.5–13% for the U.S. born and U.S. citizen samples. Interestingly, mobster returns are substantially larger than we find for the immigrant and, especially, the Italian immigrant, samples, while they are only about one percentage point higher than we find for second-generation Italians. Moreover, for mobsters who, according to the FBN records, were involved in white-collar crimes or in crimes that require running an illegal business (i.e., racketeering, loan sharking, bootlegging, etc.) we find returns to education that are about three times as large as for those who are involved in violent crimes (i.e., robberies, murders, etc.).
To our knowledge, this is the first systematic attempt to estimate the returns to education in criminal activities and provides intuitive insights into the workings of complex criminal gangs such as the mafia and into the factors considered by those deciding to become criminals in the first place. Carvalho and Soares provide some evidence on the returns to education for low level Rio de Janeiro gang members but it is not the main focus of their study.
The paper proceeds as follows. We first discuss the existing literature on education and crime, before providing a brief overview of the history of mafia organizations and members in the U.S. before 1960. We then present our novel dataset as well as our comparison samples drawn from the U.S. Census. We then discuss the empirical methodology before finally presenting our results, discussing mechanisms, and concluding.
