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The Effect of Social Networks on the Economic Outcomes of a Disadvantaged Group: Evidence from Tribal Affiliations

Listed author(s):
  • Sin, Isabelle

    ()

    (Motu Economic and Public Policy Research Trust)

  • Stillman, Steven

    ()

    (Free University of Bozen/Bolzano)

Minority groups in many countries, particularly indigenous populations, live in very segregated environments. Many social scientists believe that social networks create poverty traps in these types of segregated environments, with a lack of positive role models reinforcing a lack of good job opportunities. In this paper, we use data from the New Zealand Census to examine the relationship between the strength of an individual's local social network and their labor market outcomes. We focus on outcomes for Māori, which allows us to use tribes as exogenously formed networks, and traditional tribal ties to specific geographical regions as an exogenous shock to the locations of social networks. We thus avoid the typical problem of endogenously formed networks and network locations. We find that Māori who locate in areas with strong networks have modestly worse labour market outcomes than Māori from other tribes in the same areas. However, when we account for the endogenous selection of Māori into high networks areas, we find that they are negatively selected on both observables and unobservables and that social networks have a positive causal impact on employment and total income for women and wage rates for men. These results are consistent with those found in the literature on immigrant enclaves and allude to role that social networks play in improving job match quality.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 10803.

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Length: 29 pages
Date of creation: May 2017
Handle: RePEc:iza:izadps:dp10803
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  1. Christian Dustmann & Albrecht Glitz & Uta Schönberg & Herbert Brücker, 2016. "Referral-based Job Search Networks," Review of Economic Studies, Oxford University Press, vol. 83(2), pages 514-546.
  2. Per-Anders Edin & Peter Fredriksson & Olof Åslund, 2003. "Ethnic Enclaves and the Economic Success of Immigrants—Evidence from a Natural Experiment," The Quarterly Journal of Economics, Oxford University Press, vol. 118(1), pages 329-357.
  3. Joseph G. Altonji & Todd E. Elder & Christopher R. Taber, 2005. "Selection on Observed and Unobserved Variables: Assessing the Effectiveness of Catholic Schools," Journal of Political Economy, University of Chicago Press, vol. 113(1), pages 151-184, February.
  4. Antoni Calvó-Armengol & Matthew O. Jackson, 2004. "The Effects of Social Networks on Employment and Inequality," American Economic Review, American Economic Association, vol. 94(3), pages 426-454, June.
  5. Marianne Bertrand & Erzo F. P. Luttmer & Sendhil Mullainathan, 2000. "Network Effects and Welfare Cultures," The Quarterly Journal of Economics, Oxford University Press, vol. 115(3), pages 1019-1055.
  6. Anna Piil Damm, 2009. "Ethnic Enclaves and Immigrant Labor Market Outcomes: Quasi-Experimental Evidence," Journal of Labor Economics, University of Chicago Press, vol. 27(2), pages 281-314, 04.
  7. Joshua D. Angrist & Jörn-Steffen Pischke, 2009. "Mostly Harmless Econometrics: An Empiricist's Companion," Economics Books, Princeton University Press, edition 1, number 8769.
  8. Lori A. Beaman, 2012. "Social Networks and the Dynamics of Labour Market Outcomes: Evidence from Refugees Resettled in the U.S," Review of Economic Studies, Oxford University Press, vol. 79(1), pages 128-161.
  9. Montgomery, James D, 1991. "Social Networks and Labor-Market Outcomes: Toward an Economic Analysis," American Economic Review, American Economic Association, vol. 81(5), pages 1407-1418, December.
  10. Charles F. Manski, 1993. "Identification of Endogenous Social Effects: The Reflection Problem," Review of Economic Studies, Oxford University Press, vol. 60(3), pages 531-542.
  11. Kaivan Munshi, 2003. "Networks in the Modern Economy: Mexican Migrants in the U. S. Labor Market," The Quarterly Journal of Economics, Oxford University Press, vol. 118(2), pages 549-599.
  12. Papps, Kerry L. & Newell, James O., 2002. "Identifying Functional Labour Market Areas in New Zealand: A Reconnaissance Study Using Travel-to-Work Data," IZA Discussion Papers 443, Institute for the Study of Labor (IZA).
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