IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Log in (now much improved!) to save this paper

Social Interactions in the Labor Market

  • Grodner, Andrew

    ()

    (East Carolina University)

  • Kniesner, Thomas J.

    ()

    (Claremont Graduate University)

  • Bishop, John A.

    ()

    (East Carolina University)

We examine theoretically and empirically social interactions in labor markets and how policy prescriptions can change dramatically when there are social interactions present. Spillover effects increase labor supply and conformity effects make labor supply perfectly inelastic at a reference group average. The demand for a good may also be influenced by either a spillover effect or a conformity effect. Positive spillover increases the demand for the good with interactions, and a conformity effect makes the demand curve pivot to become less price sensitive. Similar social interactions effects appear in the associated derived demands for labor. Individual and community factors may influence the average length of poverty spells. We measure local economic conditions by the county unemployment rate and neighborhood spillover effects by the racial makeup and poverty rate of the county. We find that moving an individual from one standard deviation above the mean poverty rate to one standard deviation below the mean poverty rate (from the inner city to the suburbs) lowers the average poverty spell by 20–25 percent. We further consider overall labor market outcomes by examining theoretically the socially optimal wealth distribution. Interdependence in utility can mitigate the need to transfer wealth to low-wage individuals and may require them to be poorer by all objective measures. Finally, we quantify how labor market policy changes when there are household social interactions. Labor supply estimates indicate positive economically important spillovers for adult U.S. men. Ignoring or incorrectly considering social interactions can mis-estimate the labor supply response of tax reform in the United States by as much as 60 percent.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://ftp.iza.org/dp5934.pdf
Download Restriction: no

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 5934.

as
in new window

Length: 116 pages
Date of creation: Aug 2011
Date of revision:
Publication status: published in: Foundations and Trends in Microeconomics, 2010, 6 (4), 265-366
Handle: RePEc:iza:izadps:dp5934
Contact details of provider: Postal:
IZA, P.O. Box 7240, D-53072 Bonn, Germany

Phone: +49 228 3894 223
Fax: +49 228 3894 180
Web page: http://www.iza.org

Order Information: Postal: IZA, Margard Ody, P.O. Box 7240, D-53072 Bonn, Germany
Email:


References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Andrew B. Abel, 2005. "Optimal Taxation when Consumers Have Endogenous Benchmark Levels of Consumption," Review of Economic Studies, Oxford University Press, vol. 72(1), pages 21-42.
  2. Blomquist, N.S., 1991. "Interdependent Behavio and the Effect of Taxes," Papers 1991f, Uppsala - Working Paper Series.
  3. Andrew Grodner & John A. Bishop & Thomas J. Kniesner, 2007. "County Characteristics and Poverty Spell Length," Applied Economics Quarterly (formerly: Konjunkturpolitik), Duncker & Humblot, Berlin, vol. 53(1), pages 19-44.
  4. Bruce A. Weinberg & Patricia B. Reagan & Jeffrey J. Yankow, 2004. "Do Neighborhoods Affect Hours Worked? Evidence from Longitudinal Data," Journal of Labor Economics, University of Chicago Press, vol. 22(4), pages 891-924, October.
  5. John M. Clapp & Stephen L. Ross, 2004. "Schools and Housing Markets: An Examination of School Segregation and Performance in Connecticut," Economic Journal, Royal Economic Society, vol. 114(499), pages F425-F440, November.
  6. Steven N. Durlauf, 1992. "A Theory of Persistent Income Inequality," NBER Working Papers 4056, National Bureau of Economic Research, Inc.
  7. Case, A.C. & Katz, L.F., 1991. "The Company You Keep: The Effects Of Family And Neighborhood On Disadvantaged Younths," Harvard Institute of Economic Research Working Papers 1555, Harvard - Institute of Economic Research.
  8. Edward L. Glaeser & Bruce I. Sacerdote & Jose A. Scheinkman, 2002. "The Social Multiplier," Harvard Institute of Economic Research Working Papers 1968, Harvard - Institute of Economic Research.
  9. Edward L. Glaeser & Bruce Sacerdote & Jose A. Scheinkman, 1995. "Crime and Social Interactions," NBER Working Papers 5026, National Bureau of Economic Research, Inc.
  10. Kreider, Brent, 2003. "Income Uncertainty and Optimal Redistribution," Staff General Research Papers 10227, Iowa State University, Department of Economics.
  11. Kapteyn, A.J. & van der Geer, S. & van de Stadt, H. & Wansbeek, T.J., 1989. "Interdependent preferences : An econometric analysis," Discussion Paper 1989-54, Tilburg University, Center for Economic Research.
  12. Aronsson, Thomas & Blomquist, Soren & Sacklen, Hans, 1999. "Identifying Interdependent Behaviour in an Empirical Model of Labour Supply," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 14(6), pages 607-26, Nov.-Dec..
  13. Ann Huff Stevens, 1995. "Climbing Out of Poverty, Falling Back In: Measuring the Persistence of Poverty over Multiple Spells," NBER Working Papers 5390, National Bureau of Economic Research, Inc.
  14. Alesina, Alberto F & La Ferrara, Eliana, 2002. "Preferences for Redistribution in the Land of Opportunities," CEPR Discussion Papers 3155, C.E.P.R. Discussion Papers.
  15. Andrew Grodner & Thomas J. Kniesner, 2006. "Social Interactions in Labor Supply," Journal of the European Economic Association, MIT Press, vol. 4(6), pages 1226-1248, December.
  16. Micere Keels & Greg Duncan & Stefanie Deluca & Ruby Mendenhall & James Rosenbaum, 2005. "Fifteen years later: Can residential mobility programs provide a long-term escape from neighborhood segregation, crime, and poverty," Demography, Springer;Population Association of America (PAA), vol. 42(1), pages 51-73, February.
  17. MORENO-TERNERO, Juan D. & ROEMER, John E., . "Impartiality, priority, and solidarity in the theory of justice," CORE Discussion Papers RP 1896, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  18. Harry H. Kelejian & Ingmar R. Prucha, 1997. "A Generalized Spatial Two Stage Least Squares Procedure for Estimating a Spatial Autoregressive Model with Autoregressive Disturbances," Electronic Working Papers 97-002, University of Maryland, Department of Economics, revised Aug 1997.
  19. Charles F. Manski, 2000. "Economic Analysis of Social Interactions," NBER Working Papers 7580, National Bureau of Economic Research, Inc.
  20. William A. Brock & Steven N. Durlauf, 2001. "Discrete Choice with Social Interactions," Review of Economic Studies, Oxford University Press, vol. 68(2), pages 235-260.
  21. Mariacristina De Nardi, 2002. "Wealth inequality and intergenerational links," Staff Report 314, Federal Reserve Bank of Minneapolis.
  22. Andrew Grodner & Thomas Kniesner, 2005. "Labor Supply with Social Interactions: Econometric Estimates and Their Tax Policy Implications," Center for Policy Research Working Papers 69, Center for Policy Research, Maxwell School, Syracuse University.
  23. Michael Abbott & Orley Ashenfelter, 1979. "Labour Supply, Commodity Demand and the Allocation of Time: Correction," Review of Economic Studies, Oxford University Press, vol. 46(3), pages 567-569.
  24. Masao Ogaki & Qiang Zhang, 1998. "Decreasing Relative Risk Aversion and Tests of Risk Sharing," Working Papers 98-02, Ohio State University, Department of Economics.
  25. Krauth, Brian V., 2006. "Simulation-based estimation of peer effects," Journal of Econometrics, Elsevier, vol. 133(1), pages 243-271, July.
  26. Grodner, Andrew & Kniesner, Thomas J., 2008. "Distribution of Wealth and Interdependent Preferences," IZA Discussion Papers 3684, Institute for the Study of Labor (IZA).
  27. George A. Akerlof & Rachel E. Kranton, 2000. "Economics and Identity," The Quarterly Journal of Economics, Oxford University Press, vol. 115(3), pages 715-753.
  28. Michael Abbott & Orley Ashenfelter, 1976. "Labour Supply, Commodity Demand and the Allocation of Time," Review of Economic Studies, Oxford University Press, vol. 43(3), pages 389-411.
  29. Larry Samuelson, 2004. "Information-Based Relative Consumption Effects," Econometrica, Econometric Society, vol. 72(1), pages 93-118, 01.
  30. William A. Brock & Steven N. Durlauf, 2002. "A Multinomial-Choice Model of Neighborhood Effects," American Economic Review, American Economic Association, vol. 92(2), pages 298-303, May.
  31. Stephen P. Jenkins & Lars Osberg, 2003. "Nobody to Play with?: The Implications of Leisure Coordination," Discussion Papers of DIW Berlin 368, DIW Berlin, German Institute for Economic Research.
  32. Göran Therborn & K.C. Ho, 2009. "Introduction," City, Taylor & Francis Journals, vol. 13(1), pages 53-62, March.
  33. 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.
  34. Adriaan R. Soetevent, 2006. "Empirics of the Identification of Social Interactions; An Evaluation of the Approaches and Their Results ," Journal of Economic Surveys, Wiley Blackwell, vol. 20(2), pages 193-228, 04.
  35. Signe-Mary McKernan & Caroline Ratcliffe, 2005. "Events that Trigger Poverty Entries and Exits," Social Science Quarterly, Southwestern Social Science Association, vol. 86(s1), pages 1146-1169.
  36. Datcher, Linda P, 1982. "Effects of Community and Family Background on Achievement," The Review of Economics and Statistics, MIT Press, vol. 64(1), pages 32-41, February.
  37. Conley, T. G., 1999. "GMM estimation with cross sectional dependence," Journal of Econometrics, Elsevier, vol. 92(1), pages 1-45, September.
  38. Jushan Bai & Serena Ng, 2002. "Determining the Number of Factors in Approximate Factor Models," Econometrica, Econometric Society, vol. 70(1), pages 191-221, January.
  39. Hamish Low, 2005. "Self-Insurance in a Life-Cycle Model of Labor Supply and Savings," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 8(4), pages 945-975, October.
  40. Cormac O Grada & Morgan Kelly, 2000. "Market Contagion: Evidence from the Panics of 1854 and 1857," American Economic Review, American Economic Association, vol. 90(5), pages 1110-1124, December.
  41. Lawrence F. Katz & Jeffrey R. Kling & Jeffrey B. Liebman, 2000. "Moving to Opportunity in Boston: Early Results of a Randomized Mobility Experiment," NBER Working Papers 7973, National Bureau of Economic Research, Inc.
  42. Alberto F. Alesina & Edward L. Glaeser & Bruce Sacerdote, 2006. "Work and Leisure in the U.S. and Europe: Why So Different?," NBER Chapters, in: NBER Macroeconomics Annual 2005, Volume 20, pages 1-100 National Bureau of Economic Research, Inc.
  43. Nakamoto, Yasuhiro, 2009. "Convergence speed and preference externalities in a one-sector model with elastic labor supply," Economics Letters, Elsevier, vol. 105(1), pages 86-89, October.
  44. Jerry A. Hausman, 1981. "Stochastic Problems in the Simulation of Labor Supply," NBER Working Papers 0788, National Bureau of Economic Research, Inc.
  45. George A. Akerlof, 1997. "Social Distance and Social Decisions," Econometrica, Econometric Society, vol. 65(5), pages 1005-1028, September.
  46. J. Barkley Rosser, 2009. "Introduction," Chapters, in: Handbook of Research on Complexity, chapter 1 Edward Elgar Publishing.
  47. Yatchew,Adonis, 2003. "Semiparametric Regression for the Applied Econometrician," Cambridge Books, Cambridge University Press, number 9780521012263, November.
  48. Jushan Bai, 2003. "Inferential Theory for Factor Models of Large Dimensions," Econometrica, Econometric Society, vol. 71(1), pages 135-171, January.
  49. Thomas MaCurdy & David Green & Harry Paarsch, 1990. "Assessing Empirical Approaches for Analyzing Taxes and Labor Supply," Journal of Human Resources, University of Wisconsin Press, vol. 25(3), pages 415-490.
  50. Ziliak, J. & Kniesner, T.J., 1995. "Estimating Life-Cycle Labor Supply tax Effects," Papers 9589, Tilburg - Center for Economic Research.
  51. repec:hoo:wpaper:e-90-11 is not listed on IDEAS
  52. Bruce Sacerdote, 2000. "Peer Effects with Random Assignment: Results for Dartmouth Roommates," NBER Working Papers 7469, National Bureau of Economic Research, Inc.
  53. Becker, Gary S, 1974. "A Theory of Social Interactions," Journal of Political Economy, University of Chicago Press, vol. 82(6), pages 1063-93, Nov.-Dec..
  54. Luis Rayo & Gary S. Becker, 2007. "Evolutionary Efficiency and Happiness," Journal of Political Economy, University of Chicago Press, vol. 115, pages 302-337.
  55. Manuel Arellano & Stephen Bond, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Oxford University Press, vol. 58(2), pages 277-297.
  56. Grodner, Andrew & Kniesner, Thomas J., 2008. "Social Interactions in Demand," IZA Discussion Papers 3656, Institute for the Study of Labor (IZA).
  57. Low, Hamish & Maldoom, Daniel, 2004. "Optimal taxation, prudence and risk-sharing," Journal of Public Economics, Elsevier, vol. 88(3-4), pages 443-464, March.
  58. Angrist, Joshua & Lang, Kevin, 2004. "Does School Integration Generate Peer Effects? Evidence from Boston's Metco Program," IZA Discussion Papers 976, Institute for the Study of Labor (IZA).
  59. Marmaros, David & Sacerdote, Bruce, 2002. "Peer and social networks in job search," European Economic Review, Elsevier, vol. 46(4-5), pages 870-879, May.
  60. Hilary Hoynes & Marianne Page & Ann Stevens, 2005. "Poverty in America: Trends and Explanations," NBER Working Papers 11681, National Bureau of Economic Research, Inc.
  61. Blundell, Richard & Ham, John & Meghir, Costas, 1987. "Unemployment and Female Labour Supply," Economic Journal, Royal Economic Society, vol. 97(388a), pages 44-64, Supplemen.
  62. Kelejian, Harry H. & Prucha, Ingmar R., 2002. "2SLS and OLS in a spatial autoregressive model with equal spatial weights," Regional Science and Urban Economics, Elsevier, vol. 32(6), pages 691-707, November.
  63. Michael Kremer, 1997. "How Much does Sorting Increase Inequality?," The Quarterly Journal of Economics, Oxford University Press, vol. 112(1), pages 115-139.
  64. Bernheim, B Douglas, 1994. "A Theory of Conformity," Journal of Political Economy, University of Chicago Press, vol. 102(5), pages 841-77, October.
  65. Luis Rayo & Gary S. Becker, 2007. "Habits, Peers, and Happiness: An Evolutionary Perspective," American Economic Review, American Economic Association, vol. 97(2), pages 487-491, May.
  66. Clark, Andrew E. & Oswald, Andrew J., 1998. "Comparison-concave utility and following behaviour in social and economic settings," Journal of Public Economics, Elsevier, vol. 70(1), pages 133-155, October.
  67. Lee, Lung-fei, 2007. "GMM and 2SLS estimation of mixed regressive, spatial autoregressive models," Journal of Econometrics, Elsevier, vol. 137(2), pages 489-514, April.
  68. James H. Stock & Motohiro Yogo, 2002. "Testing for Weak Instruments in Linear IV Regression," NBER Technical Working Papers 0284, National Bureau of Economic Research, Inc.
  69. Graham, Bryan S. & Hahn, Jinyong, 2005. "Identification and estimation of the linear-in-means model of social interactions," Economics Letters, Elsevier, vol. 88(1), pages 1-6, July.
  70. Lee, Lung-fei, 2007. "Identification and estimation of econometric models with group interactions, contextual factors and fixed effects," Journal of Econometrics, Elsevier, vol. 140(2), pages 333-374, October.
  71. Steven N. Durlauf & Robert A. Moffitt, 2003. "Special issue on empirical analysis of social interactions," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 18(5), pages 499-499.
  72. Bernheim, B Douglas & Stark, Oded, 1988. "Altruism within the Family Reconsidered: Do Nice Guys Finish Last?," American Economic Review, American Economic Association, vol. 78(5), pages 1034-45, December.
  73. Mary Jo Bane & David T. Ellwood, 1986. "Slipping into and out of Poverty: The Dynamics of Spells," Journal of Human Resources, University of Wisconsin Press, vol. 21(1), pages 1-23.
  74. Uri Possen & Pierre Pestieau & Steven Slutsky, 2002. "Randomization, revelation, and redistribution in a Lerner world," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 20(3), pages 539-553.
  75. 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.
  76. Aronsson, T. & Blomquist, N.S. & Sacklen, H., 1992. "How to Identify Interdependence Behavior in an Empirical Model of Labor Supply," Papers 1992-5, Uppsala - Working Paper Series.
  77. Edward L. Glaeser & David Laibson & Bruce Sacerdote, 2002. "An Economic Approach to Social Capital," Economic Journal, Royal Economic Society, vol. 112(483), pages 437-458, November.
  78. Esther Duflo & Emmanuel Saez, 2003. "The Role of Information and Social Interactions in Retirement Plan Decisions: Evidence from a Randomized Experiment," The Quarterly Journal of Economics, Oxford University Press, vol. 118(3), pages 815-842.
  79. Woittiez, Isolde & Kapteyn, Arie, 1998. "Social interactions and habit formation in a model of female labour supply," Journal of Public Economics, Elsevier, vol. 70(2), pages 185-205, November.
  80. Peter Kooreman & Lambert Schoonbeek, 2004. "Characterizing Pareto Improvements in an Interdependent Demand System," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 6(3), pages 427-443, 08.
  81. Benabou, Roland, 1996. "Heterogeneity, Stratification, and Growth: Macroeconomic Implications of Community Structure and School Finance," American Economic Review, American Economic Association, vol. 86(3), pages 584-609, June.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:iza:izadps:dp5934. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Mark Fallak)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.