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Who benefits the most from peer effects within ethnic group? Empirical evidence on the South African Labour Market

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Abstract

This paper provides evidence that local social interactions within etnic groups may explain the puzzling variations in labour-market outcomes across individuals. Peer effects work first by creating pressure on labor-market participation, second, by conveying information about job opportunities and by raising wages. These effects differ through a selection effect: gender and ethnic groups who are less integrated in the labour market benefit more from peer effect. Finally, networks exhibit decreasing returns. The problems of endogeneity and simultaneity of local peer effects are addressed by using (i) data aggregated at the province level, (ii) the distribution of the sex of the peers' siblings as an instrumental variable and (iii) a quasi-panel data approach relying on the Hausman-Taylor estimator. The importance of social interactions in the labour market suggests that a social multiplier exists and our estimates show that any labour-market shock is magnified with an elasticity of 0.5

Suggested Citation

  • Gaëlle Ferrant & Yannick Bourquin, 2011. "Who benefits the most from peer effects within ethnic group? Empirical evidence on the South African Labour Market," Documents de travail du Centre d'Economie de la Sorbonne 11044, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
    • Handle: RePEc:mse:cesdoc:11044
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    Keywords

    Peer efects; development economics; labour; South Africa;
    All these keywords.

    JEL classification:

    • J15 - Labor and Demographic Economics - - Demographic Economics - - - Economics of Minorities, Races, Indigenous Peoples, and Immigrants; Non-labor Discrimination
    • J16 - Labor and Demographic Economics - - Demographic Economics - - - Economics of Gender; Non-labor Discrimination
    • O18 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Urban, Rural, Regional, and Transportation Analysis; Housing; Infrastructure
    • Z13 - Other Special Topics - - Cultural Economics - - - Economic Sociology; Economic Anthropology; Language; Social and Economic Stratification

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