Formal Employment and Organised Crime: Regression Discontinuity Evidence from Colombia.

This article examines the unintended consequences of Colombia's subsidised health benefits program, specifically the Subsidised Regime (SR), which uses a means test based on the Sisben socioeconomic score to determine eligibility. The program provides free health coverage to informal workers below a certain Sisben cutoff but disincentivizes formal employment because formally employed individuals must pay health insurance contributions, making informality financially more attractive. Using administrative data from Medellín between 2002 and 2012, the study employs a regression discontinuity design around the Sisben cutoff to show that increased SR eligibility reduces formal-sector employment among young men and leads to a significant rise in arrests for crimes "likely associated with criminal enterprises" (LACE), such as violent and property crimes linked to organized gangs. No corresponding increase is found for non-LACE crimes, which are more impulsive or opportunistic, suggesting that the policy's effect is specific to economic-motivated criminal activity. The effects are strongest in neighborhoods with higher baseline gang activity, highlighting how welfare eligibility criteria that discourage formal employment can inadvertently increase participation in organized crime in contexts where informal criminal opportunities are prevalent.