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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.

Suggested Citation

  • Kaivan Munshi, 2011. "Strength in Numbers: Networks as a Solution to Occupational Traps," Review of Economic Studies, Oxford University Press, vol. 78(3), pages 1069-1101.
  • Handle: RePEc:oup:restud:v:78:y:2011:i:3:p:1069-1101
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    File URL: http://hdl.handle.net/10.1093/restud/rdq029
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    References listed on IDEAS

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    Cited by:

    1. Deepti Goel & Kevin Lang, 2009. "Social Ties and the Job Search of Recent Immigrants," NBER Working Papers 15186, National Bureau of Economic Research, Inc.
    2. Ghani, Ejaz & Kerr, William R. & O'Connell, Stephen D., 2014. "Political reservations and women's entrepreneurship in India," Journal of Development Economics, Elsevier, pages 138-153.
    3. Gupta, Bishnupriya, 2014. "Discrimination or Social Networks? Industrial Investment in Colonial India," The Journal of Economic History, Cambridge University Press, vol. 74(01), pages 141-168, March.
    4. Sumit Joshi & Sudipta Sarangi & Ahmed Saber Mahmud, 2017. "Network Formation with Multigraphs and Strategic Complementarities," Working Papers 2017-27, The George Washington University, Institute for International Economic Policy.
    5. repec:eee:wdevel:v:103:y:2018:i:c:p:1-13 is not listed on IDEAS
    6. Mobarak, A. Mushfiq & Rosenzweig, Mark, 2012. "Selling Formal Insurance to the Informally Insured," Working Papers 97, Yale University, Department of Economics.
    7. Kaivan Munshi, 2014. "Community Networks and the Process of Development," Journal of Economic Perspectives, American Economic Association, vol. 28(4), pages 49-76, Fall.
    8. Kaivan Munshi & Mark Rosenzweig, 2013. "Networks, Commitment, and Competence: Caste in Indian Local Politics," NBER Working Papers 19197, National Bureau of Economic Research, Inc.
    9. Bidner, Chris & Eswaran, Mukesh, 2015. "A gender-based theory of the origin of the caste system of India," Journal of Development Economics, Elsevier, vol. 114(C), pages 142-158.
    10. Viktoria Hnatkovska & Amartya Lahiri & Sourabh Paul, 2012. "Castes and Labor Mobility," American Economic Journal: Applied Economics, American Economic Association, vol. 4(2), pages 274-307, April.
    11. Ghani,Syed Ejaz & Grover,Arti & Kerr,Sari & Kerr,William Robert, 2016. "Will market competition trump gender discrimination in India ?," Policy Research Working Paper Series 7814, The World Bank.
    12. Kaivan Munshi & Mark Rosenzweig, 2016. "Networks and Misallocation: Insurance, Migration, and the Rural-Urban Wage Gap," American Economic Review, American Economic Association, pages 46-98.
    13. Stephen D. O'Connell, 2014. "Political Inclusion and Educational Investment," Working Papers 4, City University of New York Graduate Center, Ph.D. Program in Economics, revised 15 Jul 2015.
    14. Itay Fainmesser, 2014. "Exclusive Intermediation," Working Papers 2014-3, Brown University, Department of Economics.
    15. Rocco Macchiavello & Ameet Morjaria, 2015. "The Value of Relationships: Evidence from a Supply Shock to Kenyan Rose Exports," American Economic Review, American Economic Association, vol. 105(9), pages 2911-2945, September.
    16. Victoire GIRARD, 2017. "Stabbed in the back: Does sabotage follow mandated political representation?," LEO Working Papers / DR LEO 2544, Orleans Economics Laboratory / Laboratoire d'Economie d'Orleans (LEO), University of Orleans.
    17. Angelucci, Manuela & De Giorgi, Giacomo & Rasul, Imran, 2017. "consumption and investment in resource pooling family networks," CEPR Discussion Papers 11889, C.E.P.R. Discussion Papers.
    18. Gee, Laura K. & Jones, Jason J. & Fariss, Christopher J. & Burke, Moira & Fowler, James H., 2017. "The paradox of weak ties in 55 countries," Journal of Economic Behavior & Organization, Elsevier, vol. 133(C), pages 362-372.
    19. Rajendra P. Mamgain & Shivakar Tiwari, 2016. "Youth in India: challenges of employment and inclusion," Journal of Social and Economic Development, Springer;Institute for Social and Economic Change, vol. 18(1), pages 85-100, October.
    20. Sugata Marjit & Biswajit Mandal, 2016. "International Trade, Migration and Unemployment – The Role of Informal Sector," Economics and Politics, Wiley Blackwell, vol. 28(1), pages 8-22, March.
    21. 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.
    22. Girard, Victoire, 2018. "Don’t Touch My Road. Evidence from India on Affirmative Action And Everyday Discrimination," World Development, Elsevier, vol. 103(C), pages 1-13.
    23. Florence Kondylis & Valerie Mueller, 2014. "Economic consequences of conflict and environmental displacement," Chapters,in: International Handbook on Migration and Economic Development, chapter 14, pages 388-424 Edward Elgar Publishing.

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