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Strength in Numbers: Networks as a Solution to Occupational Traps

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  • Kaivan Munshi

Abstract

The "new classical" theory states that families in low-skill occupations with low levels of human capital can stay poor from one generation to the next, while families in high-skill occupations with correspondingly high levels of human capital stay wealthy, despite being endowed with the same level of ability on average. This paper proposes an informal institutional mechanism--the community-based network--through which families belonging to the same neighbourhood or kinship group can bootstrap their way out of such low-skill occupational traps. The insight from the dynamic model that is developed is that once they form, new networks providing mutual support to their members and substituting for inherited parental human capital and wealth will strengthen most rapidly in historically disadvantaged communities, generating a correspondingly high level of intergenerational mobility. These predictions are successfully tested using unique data from India. The analysis in this paper, coupled with an emerging empirical literature on networks and migration, provides a new perspective on mobility in developing countries, with restrictive traditional networks decaying even as new networks supporting collective mobility form and strengthen over time. Copyright 2011, Oxford University Press.

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File URL: http://hdl.handle.net/10.1093/restud/rdq029
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Bibliographic Info

Article provided by Oxford University Press in its journal The Review of Economic Studies.

Volume (Year): 78 (2011)
Issue (Month): 3 ()
Pages: 1069-1101

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Handle: RePEc:oup:restud:v:78:y:2011:i:3:p:1069-1101

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  1. Maoz, Yishay D & Moav, Omer, 1999. "Intergenerational Mobility and the Process of Development," Economic Journal, Royal Economic Society, vol. 109(458), pages 677-97, October.
  2. Mookherjee, Dilip & Ray, Debraj, 2002. "Persistent Inequality," Discussion Paper 57, Center for Intergenerational Studies, Institute of Economic Research, Hitotsubashi University.
  3. David McKenzie & Hillel Rapoport, 2010. "Self-Selection Patterns in Mexico-U.S. Migration: The Role of Migration Networks," The Review of Economics and Statistics, MIT Press, vol. 92(4), pages 811-821, November.
  4. Galor, Oded & Tsiddon, Daniel, 1996. "Technological Progress, Mobility, and Economic Growth," CEPR Discussion Papers 1413, C.E.P.R. Discussion Papers.
  5. Durlauf, Steven N, 1996. " A Theory of Persistent Income Inequality," Journal of Economic Growth, Springer, vol. 1(1), pages 75-93, March.
  6. Galor, Oded & Zeira, Joseph, 1988. "Income Distribution and Macroeconomics," MPRA Paper 51644, University Library of Munich, Germany, revised 01 Sep 1989.
  7. Kaivan Munshi & Mark Rosenzweig, 2006. "Traditional Institutions Meet the Modern World: Caste, Gender, and Schooling Choice in a Globalizing Economy," American Economic Review, American Economic Association, vol. 96(4), pages 1225-1252, September.
  8. Banerjee, Abhijit V & Newman, Andrew F, 1993. "Occupational Choice and the Process of Development," Journal of Political Economy, University of Chicago Press, vol. 101(2), pages 274-98, April.
  9. Fairlie, Robert, 2014. "Ethnic and Racial Self-Employment Differences and Possible Explanations," Santa Cruz Department of Economics, Working Paper Series qt24p7v6gc, Department of Economics, UC Santa Cruz.
  10. Greif, Avner, 1994. "Cultural Beliefs and the Organization of Society: A Historical and Theoretical Reflection on Collectivist and Individualist Societies," Journal of Political Economy, University of Chicago Press, vol. 102(5), pages 912-50, October.
  11. Kaivan Munshi, 2003. "Networks In The Modern Economy: Mexican Migrants In The U.S. Labor Market," The Quarterly Journal of Economics, MIT Press, vol. 118(2), pages 549-599, May.
  12. James E. Rauch, 2001. "Business and Social Networks in International Trade," Journal of Economic Literature, American Economic Association, vol. 39(4), pages 1177-1203, December.
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Cited by:
  1. Hnatkovska, Viktoria & Lahiri, Amartya & Paul, Sourabh Bikash, 2010. "Castes and Labor Mobility," Economics working papers viktoria_hnatkovska-2010-, Vancouver School of Economics, revised 22 Oct 2010.
  2. Magnus Hatlebakk, 2013. "Intergenerational determinants of occupational choice: The case of international labor migration from Nepal," CMI Working Papers 2, CMI (Chr. Michelsen Institute), Bergen, Norway.
  3. Itay Fainmesser, 2014. "Exclusive Intermediation," Working Papers 2014-3, Brown University, Department of Economics.
  4. Ghani, Ejaz & Kerr, William R. & O'Connell, Stephen D., 2013. "Political reservations and women's entrepreneurship in India," Policy Research Working Paper Series 6307, The World Bank.
  5. Ahmed Mushfiq Mobarak & Mark Rosenzweig, 2012. "Selling Formal Insurance to the Informally Insured," Working Papers 1007, Economic Growth Center, Yale University.
  6. Gupta, Bishnupriya, 2013. "Discrimination or Social Networks? Industrial Investment in Colonial India," CAGE Online Working Paper Series 111, Competitive Advantage in the Global Economy (CAGE).
  7. Kaivan Munshi & Mark Rosenzweig, 2013. "Networks, Commitment, and Competence: Caste in Indian Local Politics," NBER Working Papers 19197, National Bureau of Economic Research, Inc.
  8. repec:cge:warwcg:110 is not listed on IDEAS
  9. Gupta, Bishnupriya, 2013. "Discrimination or Social Networks? Industrial Investment in Colonial India," The Warwick Economics Research Paper Series (TWERPS) 1019, University of Warwick, Department of Economics.

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