Social Interactions, Thresholds, and Unemployment in Neighborhoods

Brian Krauth

No 1638, Econometric Society World Congress 2000 Contributed Papers from Econometric Society

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 an implausible shape for the wage distribution. This provides further evidence that true social interaction effects are driving the earlier results.

Date: 2000-08-01
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Working Paper: Social Interactions, Thresholds, and Unemployment in Neighborhoods (2000)
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