Social Interactions, Thresholds, and Unemployment in Neighborhoods

Brian Krauth ()

Discussion Papers from Department of Economics, Simon Fraser University

Abstract: 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.

Keywords: neighborhood effects; spillovers; networks; social interactions (search for similar items in EconPapers)
JEL-codes: C14 E24 (search for similar items in EconPapers)
Date: 2000, Revised 2000-03-28
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