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Social Interaction in Regional Labour Markets

  • Joerg Lingens

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  • Joerg Heining

    ()

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    Social interaction, i.e. the interdependence of agents' behaviour via non-market activities, has recently become the focus of economic analysis. Social interaction has been used to explain various labour market outcomes. An important result arising from the literature is the proposition that labour markets are characterised by multiple equilibria. Thus, social interaction is used as an explanation for regional unemployment disparities. Building on this, we construct a Pissarides (2000) type search model with social interaction. Despite social interaction, this type of model is characterised by only one stable equilibrium. Using a unique data set on un-/employment spell data for Germany we analyse whether multiple equilibria in regional labour markets exist. After controlling for structural differences we are able to show that the data supports the assumption of a unique equilibrium. As such, social interaction cannot explain regional unemployment disparities.

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    File URL: http://www-sre.wu-wien.ac.at/ersa/ersaconfs/ersa06/papers/43.pdf
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    Paper provided by European Regional Science Association in its series ERSA conference papers with number ersa06p43.

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    Date of creation: Aug 2006
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    Handle: RePEc:wiw:wiwrsa:ersa06p43
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    1. Nickell, S. & Layard, R., 1997. "Labour Market Institutions and Economic Performance," Papers 23, Centre for Economic Performance & Institute of Economics.
    2. Moulton, Brent R, 1990. "An Illustration of a Pitfall in Estimating the Effects of Aggregate Variables on Micro Unit," The Review of Economics and Statistics, MIT Press, vol. 72(2), pages 334-38, May.
    3. Hosios, Arthur J, 1990. "On the Efficiency of Matching and Related Models of Search and Unemployment," Review of Economic Studies, Wiley Blackwell, vol. 57(2), pages 279-98, April.
    4. Alois Stutzer & Rafael Lalive, 2004. "The Role of Social Work Norms in Job Searching and Subjective Well-Being," Journal of the European Economic Association, MIT Press, vol. 2(4), pages 696-719, 06.
    5. Avinash K. Dixit & Robert S. Pindyck, 1994. "Investment under Uncertainty," Economics Books, Princeton University Press, edition 1, volume 1, number 5474.
    6. Harris Selod & Yves Zenou, 2000. "Social Interactions, Ethnic Minorities and Urban Unemployment," Working Papers 2000-20, Centre de Recherche en Economie et Statistique.
    7. Kiefer, Nicholas M, 1988. "Economic Duration Data and Hazard Functions," Journal of Economic Literature, American Economic Association, vol. 26(2), pages 646-79, June.
    8. Charles F. Manski, 2000. "Economic Analysis of Social Interactions," NBER Working Papers 7580, National Bureau of Economic Research, Inc.
    9. Steiner, Viktor, 2001. " Unemployment Persistence in the West German Labour Market: Negative Duration Dependence or Sorting?," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 63(1), pages 91-113, February.
    10. J. Paul Elhorst, 2003. "The Mystery of Regional Unemployment Differentials: Theoretical and Empirical Explanations," Journal of Economic Surveys, Wiley Blackwell, vol. 17(5), pages 709-748, December.
    11. Manning, Alan, 1991. "Multiple Equilibria in the British Labour Market: Some Empirical Evidence," CEPR Discussion Papers 540, C.E.P.R. Discussion Papers.
    12. Kolm, Ann-Sofie, 2005. "Work norms and unemployment," Economics Letters, Elsevier, vol. 88(3), pages 426-431, September.
    13. Edward L. Glaeser & Jose A. Scheinkman, 2001. "Non-Market Interactions," Harvard Institute of Economic Research Working Papers 1914, Harvard - Institute of Economic Research.
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