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Party On: The Labor Market Returns to Social Networks and Socializing

Author

Listed:
  • Adriana Lleras-Muney
  • Matthew Miller
  • Shuyang Sheng
  • Veronica T. Sovero

Abstract

A person’s schooling years are a formative time for cognitive development, and also a period of intense social interaction and friendship formation. In this paper, we estimate the production of social capital during adolescence and its effect on wages. We develop a model where homophily and coordination play crucial roles in the decision to socialize and study, which in turn determine educational attainment, network formation, and labor market outcomes. We document that individuals make investments to accumulate friends and other forms of social capital. Sometimes these investments compete with schooling investments (particularly when they involve alcohol consumption), but not always. These social investments have payoffs in the labor market and cannot be thought of as pure leisure. We estimate that receiving five to six friend nominations in adolescence has an impact on wage earnings of approximately 10%, comparable to a broad set of estimates of the return to an additional year of schooling. Therefore, policies that alter the schooling environment should be evaluated by their impacts on social capital as well as their impact on education.

Suggested Citation

  • Adriana Lleras-Muney & Matthew Miller & Shuyang Sheng & Veronica T. Sovero, 2020. "Party On: The Labor Market Returns to Social Networks and Socializing," NBER Working Papers 27337, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:27337
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    2. Lépine, Andrea & Estevan, Fernanda, 2021. "Do ability peer effects matter for academic and labor market outcomes?," Labour Economics, Elsevier, vol. 71(C).

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    More about this item

    JEL classification:

    • I20 - Health, Education, and Welfare - - Education - - - General
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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