This paper aims at disentangling the strong association between human capital and crime by investigating whether crime reduces investment in human capital or whether education reduces criminal activity. Heretofore, we exploit two aspects of the Australian survey data on education and crime we use. First, as the data are obtained from twins, we are able to control for many unobserved characteristics affecting both criminal behaviour and the schooling decisions. Second, as criminal behaviour is measured over different periods of time – prior to and after senior high school completion – we can address the causality between crime and education as well. As early criminal behaviour may affect human capital formation, and human capital may influence criminal behaviour in later stages of life, we follow a two step analysis.First, we address the effects of early criminal behaviour on educational attainment. The estimates suggest that early criminal behaviour is detrimental to investment in human capital. Within pairs of twins we find that early arrests (before the age of 18) reduce educational attainment with .7 to .9 years and lower the probability of completing senior high school with 20 to 23 percentage points. In addition, the timing of the early arrest matters, arrests at age 13, 14 or 15 are most detrimental for educational attainment. These estimates are found after controlling for conduct disorder and early school performance.Second, we focus on the effect of human capital on crime. As early criminal activity might be an important confounder, we control for early arrests. The estimates suggest that human capital has a negative effect on crime. Completing senior high school reduces the probability of incarceration with 2 to 3 percentage points. We find similar but statistically insignificant effects on the probability of being arrested since the age of 18 and on the number of arrests. The size of these estimates might be downward biased because of measurement error in schooling. IV- estimates using a second independent measure of schooling suggest that the effect of human capital might be larger. Lochner and Moretti (2004) report IV-estimates of the effect of high school completion on imprisonment of 8 percentage points for blacks and 0.9 for whites.When combining these findings, it seems that the causality between human capital and crime runs in both directions. Still, the impact of early criminal behaviour on human capital formation dominates the impact of human capital formation on future crime behaviour. Controlling for early arrests and early behaviour problems reduces the estimated effect of human capital on crime to less than one third of the previously estimated association. From this, we conclude that early criminal behaviour explains most of the association between human capital and crime.The strong detrimental effects of early criminal behaviour become also transparent if we consider the estimated effects of early arrests on all three measures of crime. Early arrests increase the probability of incarceration with 20 percentage points and the probability of being arrested since the age of 18 with 10 percentage points. These effects are much larger than the estimated effects of human capital. For instance, the estimated effect of being arrested before the age of 18 on incarceration is almost ten times higher than the estimated effect of completing high school.
That is from the conclusions of the interesting paper "Why are criminals less educated than non-criminals? Evidence from a cohort of young Australian twins" by Webbink et al., forthcoming in The Journal of Law, Economics, & Organization (2013). A draft (2008) is here.