In 2004, the total cost of all robberies in the United States was $525 million…every year, employees’ theft and fraud at the workplace are estimated at about $600 billion.
That contrast is from Dan Ariely’s Predictably Irrational. Even if you add in auto theft, burglary, and larceny-theft, the former sum does not exceed $16 billion.
Addendum: Some people are questioning the $600 billion number, see the discussion in the comments.
$600 billion sounds more like the sum of annual blue collar wages … perhaps that’s categorized as collective-bargained theft?
Who can believe such a preposterous contrast – a photocopy here, a notepad there versus the robbery figures read in the papers
every day?
Tyler, is there a footnote for the $600 billion figure? I’ll third the opinion that it’s bullshit.
Just to add in my skepticism: $600 billion is $2000 per capita. That’s a lot of ballpoint pens.
This is better.
Any top-down estimate like that is nearly always bullshit. Start with GDP and then take some percentage of it? Ahem.
Thanks, Felix. If that is how they calculated the number it is very likely wrong; for one thing they apparently are not distinguishing between gross and value added.
The point being made is that internal losses are significantly higher than external losses. This is still valid even if the fraud number is off by an order of magnitude for either $16 billion number or the $525 million as the theft loss.
Great comments. This is one reason why I love MR so much. By the way, note the “reciprocal nature” of theft: I wouldn’t have to steal those ballpoint pens if my employers just gave them to me
Isn’t the spending on fraud/theft prevention just a redistribution to lawyers, security personnel, etc?
Rob is right: the true cost of a crime includes the measures that are taken to avoid it. People will impose costs on themselves to avoid street crime – more cops, security, guns but also spending more to live in a safer neighborhood. Same for businesses.
I agree with Rob. Becker talks about this in his Nobel Prize speech, I think, or either in his the original Crime and Punishment, I can’t remember. But the costs can’t be the actual transfers, since those are just redistributions of wealth. The costs are the resources used to prevent theft. Even if there were 600 billion dollars in losses, those aren’t the costs of theft. all the spending on guns, security, dogs, and whatever else are though.
I agree that this number seems outrageous, and iw as amazed to find it. But it is the best estimate I could fine (see the link posted by Tyler Cowen).
Regardless if the precision of this estimate (lets say it is ONLY 300 billion), the main point of the argument is the difference between this number and the cost of the “standard crime.”
It seems to me that we are paying a lot of attention crimes with relatively small financial implications (the average income of a burglar is a few hundred dollars per house), and almost ignoring the actives that can have huge financial implications. We do this in the news, and also in the severity of punishment.
In my mind, this is the puzzle we should focus on
Dan
Assuming people are rational, we spend enough on crime prevention until the point where the marginal cost of preventing crime equals (or exceeds) the marginal cost of the crime. Why should I be surprised that our emphasis on preventing robberies leads to the activity not being all that profitable? Why ignore the possibility that we cannot prevent all robberies but we can suppress them to the lower number you cite? The numbers show a rational system successfully working to suppress criminal activity. Unless you want to test what the number would be if we stopped prevention measures.
Theft and fraud at the workplace is a different matter. Taking measures to lower the numbers may make the workplace less productive. Perhaps we tolerate a higher level of these crimes because the perceived costs – direct and indirect- are seen as more acceptable then creating less productive workplaces with more security. Since most companies are profitable, they must be keeping employee theft and fraud within some acceptable limits.
“The theft itself is just redistribution of wealth from rich to poor.” Nope, “Owner/Executives made up less than one-fifth of the perpetrators, but they accounted for the largest losses by far”. Calling this “employee theft” is technically true (the boss is an employee, after all), but also fairly misleading.
When you use or take a company’s ballpoint for personal use, that’s theft. So what’s it called when you bring in your own personal ballpoint pen or otherwise use it for your company’s benefit? Unreimbursed business expense?
I’d like to see the flip side of this claim: how much (if any) do employers gain from their employees- bringing in their own office supplies, off the clock work (for hourly employees), etc.?
Looking at the ACFE report, it looks like they are assuming that businesses that didn’t report fraud had just as much fraud as businesses that did. That seems improbable
Dan: It’s not the number that I question, it’s what you are comparing. You are comparing robberies (theft) with employee theft AND fraud.
You should be comparing non-employee theft and fraud with employee theft and fraud. Non-employee theft could include the various web and phone scams, corporate fraud (a la Enron), contractor scams (charging $40,000 for a renovation while only doing $10,000 of work or taking a deposit and leaving town), and so on.
Further does the cost of robberies include additional costs such as having doors and windows repaired, installing doors and windows with better security, or installing security systems? Does the cost of robberies include any health related costs – what if the robbery involved battery? Non-employee fraud could involve a year or more of credit checks to ensure that your identity has not been ‘stolen’.
Let’s compare apples with apples.
Then, and only then, should we look at the resource allocation issue.
As anyone who has had their house or business broken into knows, there are many additional costs beyond the replacement cost of goods stolen.
Just in case someone is still checking this out, Felix Salmon at Porfolio profiled this post and the subsequent comments in the post
http://www.portfolio.com/views/blogs/market-movers/2008/02/11/blogonomics-even-great-commenters-cant-generate-wall-street-salaries
Kind of fun to have your comment sited in another blog post–first time for me, anyway.
Maybe it’s reasonable after all. That’s about 4% of US GDP.
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