The Hidden Costs of Drug Trafficking: The Case of Uruguay
Criminal networks transform the daily lives of people who, while not belonging to them, live under their influence. Drawing on the case of Uruguay, I analyze the less visible costs of drug trafficking and the importance of mitigating its effects on individuals and communities.
By Emiliano Tealde1
Two people on a motorcycle open fire on a house. A man is killed in the street after being shot several times in the back. A young man dies from a stray bullet. These scenes might seem like isolated incidents of violence, but they are a visible manifestation of how drug trafficking has taken root in Montevideo, the capital of Uruguay.
For more than a decade, Uruguay has been experiencing a steady rise in violence linked to drug trafficking. Local gangs are fighting for control of drug-dealing zones in cities across the country, particularly in the capital. This escalation in violence has coincided with a rise in global cocaine production—which is now at an all-time high—making the country a major transit route to Europe.
Drug trafficking doesn't just result in deaths, corruption, or shootings. It also transforms the way everyday life functions: from young people dropping out of school and people who stop traveling around the city, to workers who lose job opportunities simply because they live in certain neighborhoods.
Drug trafficking doesn't just result in deaths, corruption, or shootouts. It also changes the way everyday life works.
What’s happening in Uruguay is nothing we haven’t seen before. Perhaps the ‘new’ thing here is the location. We Latin Americans used to associate these situations with the most paradigmatic cases in Brazil, Colombia, or Mexico. But in the search for new routes to reach major destination markets, drug trafficking has been shifting.
Uruguay is already a key player in the international logistics of drug trafficking. Until recently, one of the most wanted drug traffickers was the Uruguayan Sebastián Marset. He had already been in prison a couple of times, but—amid some legal controversy—he was released. On March 13, 2026, he was captured in Bolivia and extradited to the United States.
The Failure of the War on Drugs
Over the past half-century, several countries have focused on combating drug trafficking through supply-reduction measures that we typically group under the term ‘war on drugs.’ Despite all the resources invested, we are currently seeing record highs in global cocaine production and consumption.
The demand for drugs is inelastic—as we economists like to say; changes in price do not lead to significant changes in the quantities demanded. In such a market, even if the available supply is limited, people continue to buy the same amount regardless of the price increase. The problem is exacerbated when the price increase acts as a magnet, drawing new, riskier players into the business—players who are likely willing to take on the war on drugs in pursuit of the high profits it offers. There are European cities, such as Berlin, Copenhagen, and Zurich, where the price of a gram of cocaine is around 80 euros.
The war on drugs has failed, but it’s easier to cling to an illusion than to admit a mistake.
The Hidden Costs of Drug Trafficking
Drug trafficking has very visible costs, such as violence and corruption, and others that are not as obvious. Often, these are things that stop happening because violence prevents them. These costs are negative externalities—that is, consequences for uninvolved third parties resulting from the violence associated with drug trafficking. This is the case with the education that young people miss out on: the violence associated with drug trafficking harms the academic performance of children and adolescents in Brasiand Mexico, as well as young adults, in the case of Mexico.
There is also evidence that in areas where profits from coca cultivation for illegal purposes are on the rise, child labor increases, as in in the case of Peru, and that these children, as adults, are more likely to end up in prison for drug-related crimes. In short, exposure to drug trafficking at an early age undermines their preparation for lawful activities, while “educating” them for the illegal market.
Drug-trafficking-related violence also affects the way employers, workers, and companies make decisions. For example, Andrea Velásquez It shows that, among Mexican migrant workers, self-employed men are the ones whose incomes are most adversely affected, while women stop working.
We also have evidence from El Salvador showing that criminal gangs can affect workers. This paper It shows how people living in areas dominated by organized crime fare worse in the labor market, in part because they are unable to travel to seek employment opportunities in the city.
Labor market demand can also be affected by violence. Let’s imagine two identical candidates applying for a job. They have similar experience, comparable levels of productivity, and similar profiles. There is only one difference: one lives in a neighborhood associated with drug-related violence, and the other does not.
In my research: Where You Live Matters: Drug Trade-Related Violence and Discrimination in the Labor Market, I tested how potential employers react to that difference. To do so, I sent different job profiles to employers in Uruguay. Some candidates lived in neighborhoods where violence linked to drug trafficking is common, while others lived in areas where property crimes are more common. In the experiment, all candidates had exactly the same profile; the only thing that differed was their place of residence.
Employers were less willing to hire a candidate if he or she lived in a neighborhood where drug-related violence is commonplace. This discrimination disappeared if the job candidate had completed high school. Only those who lived in a neighborhood associated with drug trafficking and had not completed high school had fewer opportunities in the labor market.
The effect was observed only among the most experienced employers and was not due to their perception of differences in the candidates' abilities.
Two candidates may have the same level of experience and productivity. Even so, the one who lives in a neighborhood associated with drug trafficking is less likely to be hired.
The results are consistent across employers with differing beliefs about the extent to which various types of candidates are exposed to criminal networks. If they believe that those living in areas associated with drug-related violence are more exposed to criminal networks, they are less likely to hire them.
Mitigating the Negative
A broad, genuine, and far-reaching liberalization of drug policies at the international level is out of the question in the short term. Therefore, it may be more productive to focus on measures that mitigate the negative consequences of the drug trade on everyday life rather than on seeking idealized, definitive solutions.
If labor market demand discriminates against those who live in neighborhoods associated with drug trafficking, we may be facing a vicious cycle in which employers create the very thing they fear—even if it does not necessarily exist.
If people living in neighborhoods associated with drug trafficking face greater difficulties entering the legal labor market, illegal markets may end up being the only viable option for this segment of the population.
In economics, we know this as a self-fulfilling prophecy: a belief leads us to make decisions that cause that belief to become a reality. Employers believe that a candidate is more dangerous because of where they live, and that belief actually causes people from that area to become more involved in drug trafficking.
In the Latin American context, due to its historically low levels of inequality and high levels of trust among the population, Uruguay proved to be an ideal testing ground for studying the impact of drug trafficking on employment. Furthermore, the adverse effects of drug trafficking have only been felt for a relatively short time. Now, it remains to be seen to what extent the findings from this experiment on labor market discrimination in Uruguay hold true in other contexts. This research agenda will help us gain a better understanding of the link between drug trafficking and employment.
As progress is made in this direction, the findings already point to the need to recognize and address the employment barriers faced by those living in areas affected by drug trafficking. Ignoring these barriers not only deepens their exclusion but can also create conditions that allow organized crime to gain legitimacy among the most affected communities.
It is necessary to identify groups that are particularly affected, such as young people with low levels of education from neighborhoods that suffer from drug-related violence or that, due to their characteristics, could be at risk of such violence. For these groups, it is important to design labor markets and policies that enable them to participate in quality jobs. The agenda for mitigating the damage caused by drug trafficking must take into account the distortions it creates in the labor market.
Drug trafficking has the undesirable tendency to create the conditions for its own perpetuation. Although no single action can, on its own, eliminate drug trafficking and its consequences, it is within our power to set more realistic goals. We need to think about how to organize ourselves as a society to mitigate the problem, so that the consequences of drug-related violence cease to be a central part of our daily lives.
- Emiliano Tealde is a professor at the Catholic University of Uruguay and the author of the research Where You Live Matters: Drug-Related Violence and Discrimination in the Labor Market. ↩︎