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Social Interactions, Thresholds, and Unemployment in Neighborhoods

  • Brian Krauth

    (Simon Fraser University)

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.

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Paper provided by Econometric Society in its series Econometric Society World Congress 2000 Contributed Papers with number 1638.

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Date of creation: 01 Aug 2000
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Handle: RePEc:ecm:wc2000:1638
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  1. Romer, Paul M, 1990. "Endogenous Technological Change," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages S71-102, October.
  2. William A. Brock & Steven N. Durlauf, 1995. "Discrete Choice with Social Interactions I: Theory," Working Papers 95-10-084, Santa Fe Institute.
  3. Edward E. Glaeser & Bruce Sacerdote & Jose A. Scheinkman, 1995. "Crime and Social Interactions," Harvard Institute of Economic Research Working Papers 1738, Harvard - Institute of Economic Research.
  4. Evans, William N & Oates, Wallace E & Schwab, Robert M, 1992. "Measuring Peer Group Effects: A Study of Teenage Behavior," Journal of Political Economy, University of Chicago Press, vol. 100(5), pages 966-91, October.
  5. Durlauf, Steven N, 1996. " A Theory of Persistent Income Inequality," Journal of Economic Growth, Springer, vol. 1(1), pages 75-93, March.
  6. Finneran, L. & Kelly, M., 1996. "Labour Market Networks, Underclass and Inequality," Papers 96/21, College Dublin, Department of Political Economy-.
  7. Knack, Stephen & Keefer, Philip, 1997. "Does Social Capital Have an Economic Payoff? A Cross-Country Investigation," The Quarterly Journal of Economics, MIT Press, vol. 112(4), pages 1251-88, November.
  8. Charles F. Manski, 2000. "Economic Analysis of Social Interactions," NBER Working Papers 7580, National Bureau of Economic Research, Inc.
  9. 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.
  10. Brian Krauth, 1998. "A Dynamic Model of Job Networks and Persistent Inequality," Research in Economics 98-06-049e, Santa Fe Institute.
  11. repec:att:wimass:9127 is not listed on IDEAS
  12. 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 S133-51, Suppl. De.
  13. Manski, Charles F, 1993. "Identification of Endogenous Social Effects: The Reflection Problem," Review of Economic Studies, Wiley Blackwell, vol. 60(3), pages 531-42, July.
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