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Social Interactions, Thresholds, and Unemployment in Neighborhoods

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  • Brian Krauth

    (Simon Fraser University)

Abstract

This paper finds that the predicted unemployment rate in a community increases dramatically when the fraction of neighborhood residents with college degrees drops below twenty percent. This threshold behavior provides empirical support for ``epidemic'' theories of inner-city unemployment. Using a structural model with unobserved neighborhood heterogeneity in productivity due to sorting, I show that sorting alone cannot generate the observed thresholds without also implying an implausible shape for the wage distribution. This provides further evidence that true social interaction effects are driving the earlier results.

Suggested Citation

  • Brian Krauth, 2000. "Social Interactions, Thresholds, and Unemployment in Neighborhoods," Econometric Society World Congress 2000 Contributed Papers 1638, Econometric Society.
    • Handle: RePEc:ecm:wc2000:1638
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    References listed on IDEAS

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    1. Johnson, G.E. & Layard, P.R.G., 1987. "The natural rate of unemployment: Explanation and policy," Handbook of Labor Economics, in: O. Ashenfelter & R. Layard (ed.), Handbook of Labor Economics, edition 1, volume 2, chapter 16, pages 921-999, Elsevier.
    2. Edward L. Glaeser & Bruce Sacerdote & José A. Scheinkman, 1996. "Crime and Social Interactions," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 111(2), pages 507-548.
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    5. Brian Krauth, 1998. "A Dynamic Model of Job Networks and Persistent Inequality," Research in Economics 98-06-049e, Santa Fe Institute.
    6. Charles F. Manski, 1993. "Identification of Endogenous Social Effects: The Reflection Problem," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 60(3), pages 531-542.
    7. William A. Brock & Steven N. Durlauf, 1995. "Discrete Choice with Social Interactions I: Theory," NBER Working Papers 5291, National Bureau of Economic Research, Inc.
    8. William N. Evans & Wallace E. Oates & Robert M. Schwab & William N. Evans & Wallace E. Oates & Robert M. Schwab, 2004. "Measuring Peer Group Effects: A Study of Teenage Behavior," Chapters, in: Environmental Policy and Fiscal Federalism, chapter 13, pages 232-257, Edward Elgar Publishing.
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    11. Durlauf, Steven N, 1996. "A Theory of Persistent Income Inequality," Journal of Economic Growth, Springer, vol. 1(1), pages 75-93, March.
    12. repec:eee:labchp:v:2:y:1986:i:c:p:921-999 is not listed on IDEAS
    13. Koning, Pierre & Ridder, Geert & van den Berg, Gerard J, 1995. "Structural and Frictional Unemployment in an Equilibrium Search Model with Heterogeneous Agents," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 10(S), pages 133-151, Suppl. De.
    14. Romer, Paul M, 1990. "Endogenous Technological Change," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages 71-102, October.
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    Cited by:

    1. Adriaan R. Soetevent, 2006. "Empirics of the Identification of Social Interactions; An Evaluation of the Approaches and Their Results," Journal of Economic Surveys, Wiley Blackwell, vol. 20(2), pages 193-228, April.
    2. Yannis M. Ioannides & Linda Datcher Loury, 2004. "Job Information Networks, Neighborhood Effects, and Inequality," Journal of Economic Literature, American Economic Association, vol. 42(4), pages 1056-1093, December.
    3. Oomes, Nienke, 2003. "Local trade networks and spatially persistent unemployment," Journal of Economic Dynamics and Control, Elsevier, vol. 27(11-12), pages 2115-2149, September.
    4. Qingyan Shang, 2014. "Endogenous neighborhood effects on welfare participation," Empirical Economics, Springer, vol. 47(2), pages 639-667, September.
    5. Krauth, Brian V., 2004. "A dynamic model of job networking and social influences on employment," Journal of Economic Dynamics and Control, Elsevier, vol. 28(6), pages 1185-1204, March.
    6. Bruce A. Weinberg & Patricia B. Reagan & Jeffrey J. Yankow, 2004. "Do Neighborhoods Affect Hours Worked? Evidence from Longitudinal Data," Journal of Labor Economics, University of Chicago Press, vol. 22(4), pages 891-924, October.
    7. Bruce A. Weinberg, 2007. "Social Interactions with Endogenous Associations," NBER Working Papers 13038, National Bureau of Economic Research, Inc.

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    More about this item

    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity

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