Recent research has highlighted the importance of interaction between individuals and their community in determining criminal and labor market choice, while standard models have focused on a human capital explanation. This research attempts to reconcile these two strands of literature by empirically exploring the role of each of these factors in the decision to work and commit crime. To do this, we model social interactions through the notion of social capital, which measures one's 'stock' in society. Social capital is thus the mechanism by which social norms are enforced, and social sanctions imposed. Our results provide strong support for a human capital theory of labor market behavior, and a social capital theory of crime. We find no evidence that human capital factors determine participation in crime. While social capital is important in explaining the decision to work, the evidence is weaker in terms of explaining labor market success as measured by earnings.
