A study of business activity and crime in five cities found that when the number of homicides increased dramatically in low-crime rate zip codes, there were significant reductions in the growth rate of new retail and service businesses, and employment in existing businesses.
Surges in homicides in high-crime areas had no significant effect on local business growth.
The results show how the impact of violent crime extends beyond areas where it is most prevalent, said Robert Greenbaum, co-author of the study and assistant professor of public policy and management at Ohio State University.
"It is not just the levels of crime, but the fear of crime that affects the decisions people make," he said.
"The fact that violent crime is rare in low-crime areas makes any increase all the more shocking and frightening. Customers are less likely to visit businesses in the neighborhood, and entrepreneurs are less likely to open a new business."
Greenbaum conducted the study with George Tita, assistant professor of criminology, law and society at the University of California - Irvine. Their results were published in a recent issue of the journal Urban Studies.
Tita said the results show how violent crime is an issue outside the high-crime areas of cities and affects more than just victims.
"There are secondary costs of violence - when violence happens in low-crime neighborhoods, businesses close, retail business contracts, people lose jobs," Tita said.
"It has a far-reaching economic impact beyond loss of life to homicide."
The researchers used data on homicide rates between 1987 and 1994 in individual zip codes within Chicago, Houston, Miami, Pittsburgh and St. Louis. The data came from the National Consortium of Violence Research. They focused on homicide because homicide rates are related to levels of other violent crimes, homicide is better reported than other crimes, and it is normally very visible to the community.
They examined changes in the homicide rates from year-to-year to identify zip codes within the five cities that underwent a surge in homicides. They considered a zip code to have surged in any year that it had one of the highest (top 10 percent) increases in the number of homicides above its own baseline average for murders.
The researchers also looked at businesses opening and closing in each of the same zip codes, as well as employment trends for each business operating in the neighborhood. This data came from the Longitudinal Business Database from the U.S. Census Bureau.
The goal was to compare business growth rates before and after homicide surges. These growth rates were compared to rates in similar matched zip codes that did not undergo surges in crime.
Of the 260 zip codes the researchers studied, 105 experienced a homicide surge during at least one year between 1987 and 1994. Of course, for some low-crime areas, a relatively small number of homicides during a particular year may qualify as a surge, Greenbaum said.
The findings showed that homicide surges in low-crime areas hurt business growth and employment in service and retail businesses, such as grocery stores, barber shops and doctors' offices. There was less of an effect on other types of businesses, such as manufacturing plants.
"Businesses who have to attract customers will find it more difficult if people are afraid to go into the neighborhood where they are located," Greenbaum said. "It may also make it more difficult to find employees who are willing to work there."
In medium-crime areas, homicide surges had some negative effects on business, but not as much as in the low-crime areas. The study found no effects on businesses when surges occurred in high-crime neighborhoods.
"In high-crime areas, a surge may not even be perceptible to many people," he said. "Businesses and customers are already aware of the high crime rate and have adjusted their expectations."
That doesn't mean violence doesn't hurt businesses in high-crime areas, Greenbaum said. These areas have fewer new businesses and lower employment rates than other areas of the city. However, because businesses and customers have already done what they can to deal with the crime, surges in the crime rate don't have as strong an impact.
"The results show how the fear of crime can directly impact the activities of customers and potential employees, and how this impact can be greatest in areas with the least crime," he said.
The researchers are continuing their work now by studying how crime affects housing markets in Los Angeles and Columbus.
This study was partially supported by the National Consortium of Violence Research at Carnegie Mellon University, the Office of Research at Ohio State, and the Criminal Justice Research Center at Ohio State.