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

Social Interactions in the Labor Market

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://www.maxwell.syr.edu/uploadedFiles/cpr/publications/working_papers2/wp133.pdf
Download Restriction: no

Paper provided by Center for Policy Research, Maxwell School, Syracuse University in its series Center for Policy Research Working Papers with number 133.

as
in new window

Length: 112 pages
Date of creation: Aug 2011
Date of revision:
Handle: RePEc:max:cprwps:133
Contact details of provider: Postal:
426 Eggers Hall, Syracuse, New York USA 13244-1020

Phone: (315) 443-3114
Fax: (315) 443-1081
Web page: http://www.maxwell.syr.edu/cpr.aspx
Email:


More information through EDIRC

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. Kapteyn, A.J. & van de Geer, S. & van de Stadt, H. & Wansbeek, T.J., 1984. "Interdependent preferences : An econometric analysis," Research Memorandum FEW 140, Tilburg University, School of Economics and Management.
  2. Jerry A. Hausman, 1981. "Stochastic Problems in the Simulation of Labor Supply," NBER Working Papers 0788, National Bureau of Economic Research, Inc.
  3. Kreider, Brent, 2003. "Income Uncertainty and Optimal Redistribution," Staff General Research Papers Archive 10227, Iowa State University, Department of Economics.
  4. 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.
  5. Bernheim, B Douglas, 1994. "A Theory of Conformity," Journal of Political Economy, University of Chicago Press, vol. 102(5), pages 841-77, October.
  6. 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.
  7. 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.
  8. Jushan Bai, 2003. "Inferential Theory for Factor Models of Large Dimensions," Econometrica, Econometric Society, vol. 71(1), pages 135-171, January.
  9. 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.
  10. Grodner, Andrew & Kniesner, Thomas J., 2007. "Labor Supply with Social Interactions: Econometric Estimates and Their Tax Policy Implications," IZA Discussion Papers 3034, Institute for the Study of Labor (IZA).
  11. Masao Ogaki & Qiang Zhang, 1998. "Decreasing Relative Risk Aversion and Tests of Risk Sharing," Working Papers 98-02, Ohio State University, Department of Economics.
  12. Low, Hamish & Maldoom, Daniel, 2004. "Optimal taxation, prudence and risk-sharing," Journal of Public Economics, Elsevier, vol. 88(3-4), pages 443-464, March.
  13. 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.
  14. Marmaros, David & Sacerdote, Bruce, 2002. "Peer and social networks in job search," European Economic Review, Elsevier, vol. 46(4-5), pages 870-879, May.
  15. 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.
  16. Grodner, Andrew & Kniesner, Thomas J., 2008. "Distribution of Wealth and Interdependent Preferences," IZA Discussion Papers 3684, Institute for the Study of Labor (IZA).
  17. 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.
  18. Joshua D. Angrist & Kevin Lang, 2004. "Does School Integration Generate Peer Effects? Evidence from Boston's Metco Program," American Economic Review, American Economic Association, vol. 94(5), pages 1613-1634, December.
  19. Edward L. Glaeser & Bruce Sacerdote & Jose A. Scheinkman, 1995. "Crime and Social Interactions," NBER Working Papers 5026, National Bureau of Economic Research, Inc.
  20. MORENO-TERNERO, Juan D. & ROEMER, John E., 2005. "Impartiality, priority, and solidarity in the theory of justice," CORE Discussion Papers 2005077, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  21. 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.
  22. J. Barkley Rosser, 2009. "Introduction," Chapters, in: Handbook of Research on Complexity, chapter 1 Edward Elgar Publishing.
  23. Alberto Alesina & Eliana La Ferrara, 2001. "Preferences for Redistribution in the Land of Opportunities," Harvard Institute of Economic Research Working Papers 1936, Harvard - Institute of Economic Research.
  24. 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.
  25. 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.
  26. Mariacristina De Nardi, 2004. "Wealth Inequality and Intergenerational Links," Review of Economic Studies, Oxford University Press, vol. 71(3), pages 743-768.
  27. Aronsson, Thomas & Blomquist, Sören & Sacklén, Hans, 1998. "Identifying Interdependent Behavior in an Empirical Model of Labor Supply," Working Paper Series 147, Trade Union Institute for Economic Research.
  28. 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.
  29. Hilary Hoynes & Marianne Page & Ann Stevens, 2005. "Poverty in America: Trends and Explanations," NBER Working Papers 11681, National Bureau of Economic Research, Inc.
  30. Kelejian, Harry H & Prucha, Ingmar R, 1998. "A Generalized Spatial Two-Stage Least Squares Procedure for Estimating a Spatial Autoregressive Model with Autoregressive Disturbances," The Journal of Real Estate Finance and Economics, Springer, vol. 17(1), pages 99-121, July.
  31. Michael Kremer, 1997. "How Much does Sorting Increase Inequality?," The Quarterly Journal of Economics, Oxford University Press, vol. 112(1), pages 115-139.
  32. Blundell, Richard & Ham, John & Meghir, Costas, 1987. "Unemployment and Female Labour Supply," Economic Journal, Royal Economic Society, vol. 97(388a), pages 44-64, Supplemen.
  33. Durlauf, Steven N, 1996. "A Theory of Persistent Income Inequality," Journal of Economic Growth, Springer, vol. 1(1), pages 75-93, March.
  34. Woittiez, I. & Kapteyn, A., 1997. "Social interactions and habit formation in a model of female labor supply," Discussion Paper 1997-41, Tilburg University, Center for Economic Research.
  35. 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.
  36. Gary S. Becker, 1974. "A Theory of Social Interactions," NBER Working Papers 0042, National Bureau of Economic Research, Inc.
  37. James P. Ziliak & Thomas J. Kniesner, 1999. "Estimating Life Cycle Labor Supply Tax Effects," Journal of Political Economy, University of Chicago Press, vol. 107(2), pages 326-359, April.
  38. John M. Clapp & Stephen L. Ross, 2002. "Schools and Housing Markets: An Examination of School Segregation and Performance in Connecticut," Working papers 2002-08, University of Connecticut, Department of Economics.
  39. 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.
  40. Jushan Bai & Serena Ng, 2000. "Determining the Number of Factors in Approximate Factor Models," Econometric Society World Congress 2000 Contributed Papers 1504, Econometric Society.
  41. 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.
  42. 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.
  43. 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.
  44. Yatchew,Adonis, 2003. "Semiparametric Regression for the Applied Econometrician," Cambridge Books, Cambridge University Press, number 9780521012263, Junio.
  45. 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.
  46. 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.
  47. Charles F. Manski, 2000. "Economic Analysis of Social Interactions," NBER Working Papers 7580, National Bureau of Economic Research, Inc.
  48. 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.
  49. 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.
  50. 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.
  51. 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.
  52. 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.
  53. Michael Abbott & Orley C Ashenfelter, 1974. "Labor Supply, Commodity Demand, and the Allocation of Time," Working Papers 437, Princeton University, Department of Economics, Industrial Relations Section..
  54. repec:hoo:wpaper:e-90-11 is not listed on IDEAS
  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. George A. Akerlof, 1997. "Social Distance and Social Decisions," Econometrica, Econometric Society, vol. 65(5), pages 1005-1028, September.
  57. 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.
  58. 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.
  59. Göran Therborn & K.C. Ho, 2009. "Introduction," City, Taylor & Francis Journals, vol. 13(1), pages 53-62, March.
  60. Lawrence F. Katz & Jeffrey R. Kling & Jeffrey B. Liebman, 2001. "Moving to Opportunity in Boston: Early Results of a Randomized Mobility Experiment," The Quarterly Journal of Economics, Oxford University Press, vol. 116(2), pages 607-654.
  61. Andrew Grodner & John A. Bishop & Thomas Kniesner, 2006. "County Characteristics and Poverty Spell Length," Center for Policy Research Working Papers 82, Center for Policy Research, Maxwell School, Syracuse University.
  62. Brian Krauth, 2004. "Simulation-based estimation of peer effects," Econometrics 0408002, EconWPA.
  63. Blomquist, N.S., 1991. "Interdependent Behavio and the Effect of Taxes," Papers 1991f, Uppsala - Working Paper Series.
  64. Larry Samuelson, 2004. "Information-Based Relative Consumption Effects," Econometrica, Econometric Society, vol. 72(1), pages 93-118, 01.
  65. George A. Akerlof & Rachel E. Kranton, 2000. "Economics and Identity," The Quarterly Journal of Economics, Oxford University Press, vol. 115(3), pages 715-753.
  66. 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.
  67. 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.
  68. 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.
  69. Luis Rayo & Gary S. Becker, 2007. "Evolutionary Efficiency and Happiness," Journal of Political Economy, University of Chicago Press, vol. 115, pages 302-337.
  70. 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.
  71. Bruce Sacerdote, 2000. "Peer Effects with Random Assignment: Results for Dartmouth Roommates," NBER Working Papers 7469, National Bureau of Economic Research, Inc.
  72. 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.
  73. 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.
  74. 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.
  75. 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.
  76. Conley, T. G., 1999. "GMM estimation with cross sectional dependence," Journal of Econometrics, Elsevier, vol. 92(1), pages 1-45, September.
  77. Grodner, Andrew & Kniesner, Thomas J., 2008. "Social Interactions in Demand," IZA Discussion Papers 3656, Institute for the Study of Labor (IZA).
  78. 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.
  79. 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.
  80. 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.
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:max:cprwps:133. 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: (Kelly Bogart)

or (Katrina Wingle)

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.