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Social Interaction in Regional Labour Markets

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  • Joerg Lingens

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  • Joerg Heining

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    Abstract

    Social interaction, i.e. the interdependence of agents' behaviour via non-market activities, has recently become the focus of economic analysis. Social interaction has been used to explain various labour market outcomes. An important result arising from the literature is the proposition that labour markets are characterised by multiple equilibria. Thus, social interaction is used as an explanation for regional unemployment disparities. Building on this, we construct a Pissarides (2000) type search model with social interaction. Despite social interaction, this type of model is characterised by only one stable equilibrium. Using a unique data set on un-/employment spell data for Germany we analyse whether multiple equilibria in regional labour markets exist. After controlling for structural differences we are able to show that the data supports the assumption of a unique equilibrium. As such, social interaction cannot explain regional unemployment disparities.

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    Bibliographic Info

    Paper provided by European Regional Science Association in its series ERSA conference papers with number ersa06p43.

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    Date of creation: Aug 2006
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    Handle: RePEc:wiw:wiwrsa:ersa06p43

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    1. Stutzer, Alois & Lalive, Rafael, 2001. "The Role of Social Work Norms in Job Searching and Subjective Well-Being," IZA Discussion Papers 300, Institute for the Study of Labor (IZA).
    2. Charles F. Manski, 2000. "Economic Analysis of Social Interactions," NBER Working Papers 7580, National Bureau of Economic Research, Inc.
    3. Richard Layard & Stephen Nickell, 1998. "Labour Market Institutions and Economic Performance," CEP Discussion Papers dp0407, Centre for Economic Performance, LSE.
    4. Edward L. Glaeser & Jose Scheinkman, 2000. "Non-Market Interactions," NBER Working Papers 8053, National Bureau of Economic Research, Inc.
    5. J. Paul Elhorst, 2003. "The Mystery of Regional Unemployment Differentials: Theoretical and Empirical Explanations," Journal of Economic Surveys, Wiley Blackwell, vol. 17(5), pages 709-748, December.
    6. Kolm, Ann-Sofie, 2005. "Work norms and unemployment," Economics Letters, Elsevier, vol. 88(3), pages 426-431, September.
    7. Manning, Alan, 1992. "Multiple equilibria in the British labour market : Some empirical evidence," European Economic Review, Elsevier, vol. 36(7), pages 1333-1365, October.
    8. Moulton, Brent R, 1990. "An Illustration of a Pitfall in Estimating the Effects of Aggregate Variables on Micro Unit," The Review of Economics and Statistics, MIT Press, vol. 72(2), pages 334-38, May.
    9. Harris Selod & Yves Zenou, 2000. "Social Interactions, Ethnic Minorities and Urban Unemployment," Working Papers 2000-20, Centre de Recherche en Economie et Statistique.
    10. Steiner, Viktor, 2001. " Unemployment Persistence in the West German Labour Market: Negative Duration Dependence or Sorting?," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 63(1), pages 91-113, February.
    11. Kiefer, Nicholas M, 1988. "Economic Duration Data and Hazard Functions," Journal of Economic Literature, American Economic Association, vol. 26(2), pages 646-79, June.
    12. Hosios, Arthur J, 1990. "On the Efficiency of Matching and Related Models of Search and Unemployment," Review of Economic Studies, Wiley Blackwell, vol. 57(2), pages 279-98, April.
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