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Social Interactions, Thresholds, and Unemployment in Neighborhoods

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 a wage distribution which is inconsistent with that observed in microeconomic data. Social interaction effects are thus a necessary element in any suitable explanation for the data.

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File URL: http://www.sfu.ca/econ-research/RePEc/sfu/sfudps/dp00-12.pdf
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Paper provided by Department of Economics, Simon Fraser University in its series Discussion Papers with number dp00-12.

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Length: 33 pages
Date of creation: 2000
Date of revision: 28 Mar 2000
Handle: RePEc:sfu:sfudps:dp00-12
Contact details of provider: Postal: Department of Economics, Simon Fraser University, 8888 University Drive, Burnaby, BC, V5A 1S6, Canada
Phone: (778)782-3508
Fax: (778)782-5944
Web page: http://www.sfu.ca/economics.html

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Order Information: Postal: Working Paper Coordinator, Department of Economics, Simon Fraser University, 8888 University Drive, Burnaby, BC, V5A 1S6, Canada
Web: http://www.sfu.ca/economics/research/publications.html Email:


References listed on IDEAS
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  1. Brian Krauth, 1998. "A Dynamic Model of Job Networks and Persistent Inequality," Research in Economics 98-06-049e, Santa Fe Institute.
  2. repec:att:wimass:9521 is not listed on IDEAS
  3. Edward L. Glaeser & Bruce Sacerdote & Jose A. Scheinkman, 1995. "Crime and Social Interactions," NBER Working Papers 5026, National Bureau of Economic Research, Inc.
  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. 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.
  6. Durlauf, S.N., 1992. "A Theory of Persistent Income Inequality," Papers 47, Stanford - Institute for Thoretical Economics.
  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. Lisa Finneran & Morgan Kelly, 1996. "Labour Market Networks, Underclasses and Inequality," Working Papers 96/21, University College Dublin, Economics Department.
  9. Charles F. Manski, 2000. "Economic Analysis of Social Interactions," Journal of Economic Perspectives, American Economic Association, vol. 14(3), pages 115-136, Summer.
  10. repec:att:wimass:9127 is not listed on IDEAS
  11. 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.
  12. William A. Brock & Steven N. Durlauf, 1995. "Discrete Choice with Social Interactions I: Theory," NBER Working Papers 5291, National Bureau of Economic Research, Inc.
  13. 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.
  14. Paul M Romer, 1999. "Endogenous Technological Change," Levine's Working Paper Archive 2135, David K. Levine.
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