Social Interactions in the Labor Market

We examine theoretically and empirically social interactions in labor markets and how policy prescriptions can change dramatically when there are social interactions present. Spillover effects increase labor supply and conformity effects make labor supply perfectly inelastic at a reference group average. The demand for a good may also be influenced by either a spillover effect or a conformity effect. Positive spillover increases the demand for the good with interactions, and a conformity effect makes the demand curve pivot to become less price sensitive. Similar social interactions effects appear in the associated derived demands for labor. Individual and community factors may influence the average length of poverty spells. We measure local economic conditions by the county unemployment rate and neighborhood spillover effects by the racial makeup and poverty rate of the county. We find that moving an individual from one standard deviation above the mean poverty rate to one standard deviation below the mean poverty rate (from the inner city to the suburbs) lowers the average poverty spell by 20–25 percent. We further consider overall labor market outcomes by examining theoretically the socially optimal wealth distribution. Interdependence in utility can mitigate the need to transfer wealth to low-wage individuals and may require them to be poorer by all objective measures. Finally, we quantify how labor market policy changes when there are household social interactions. Labor supply estimates indicate positive economically important spillovers for adult U.S. men. Ignoring or incorrectly considering social interactions can mis-estimate the labor supply response of tax reform in the United States by as much as 60 percent.social interactions, spillover, conformity, inequality, poverty, labor supply, reference group, social multiplier, income tax, PSID

Social Interactions in Labor Supply

Our research examines the effect of interdependence on estimation and interpretation of earnings/labor supply equations. We consider the cases of (1) a positive spillover from others’ labor supplied and (2) a need for conformity with others’ labor supplied. Qualitative and quantitative comparative statics results with a Stone-Geary utility function demonstrate how spillover effects increase labor supply uniformly. Alternatively, conformity effects move labor supplied toward the mean of the reference group so that, in the limit, labor supply becomes perfectly inelastic at the reference group average. When there are un-modeled exogenous social interactions, conventional wage elasticities are still relatively well estimated although structural parameters may not be. Omitting endogenous social interactions may seriously misrepresent the labor supply effects of policy, however

Distribution of Wealth and Interdependent Preferences

We examine the socially optimal wealth distribution in a two-person two-good model with heterogeneous workers and asymmetric social interactions where only one (social) individual derives positive or negative utility from the leisure of the other (non-social) individual. We show that the interdependence can effectively counter-act the need to transfer wealth to low-wage individuals and may require them to be poorer by all objective measures. We demonstrate that in the presence of social interactions it can be socially desirable to keep substantial wealth inequality

Labor Supply with Social Interactions: Econometric Estimates and Their Tax Policy Implications

Our research fleshes out econometric details of examining possible social interactions in labor supply. We look for a response of a person\u27s hours worked to hours worked in the labor market reference group, which includes those with similar age, family structure, and location. We identify endogenous spillovers by instrumenting average hours worked in the reference group with hours worked in neighboring reference groups. Estimates of the canonical labor supply model indicate positive economically important spillovers for adult men. The estimated total wage elasticity of labor supply is 0.22, where 0.08 is the exogenous wage change effect and 0.14 is the social interactions effect. We demonstrate how ignoring or incorrectly considering social interactions can mis-estimate the labor supply response of tax reform by as much as 60 percent

Social Interactions in Demand

We examine theoretically demand in a two-good economy where the demand of one good is influenced by either a spillover effect in the form of an externality from other consumers\u27 choices and or a conformity effect representing a need for making similar choices as others. A positive spillover effect increases the demand for the good with interactions, and a conformity effect makes the demand curve pivot around the average market demand to make demand less price sensitive. The collateral implication is that spillover in consumption increases the associated derived demand for labor and conformity in consumption makes the associated derived demand for labor less elastic. Finally, we also demonstrate how the presence of a good with social interactions affects the demand for the good without social interactions and the associated demand for the labor producing the non-interactions good

Labor Supply with Social Interactions: Econometric Estimates and Their Tax Policy Implications

Our research fleshes out econometric details of examining possible social interactions in labor supply. We look for a response of a person\u27s hours worked to hours worked in the labor market reference group, which includes those with similar age, family structure, and location. We identify endogenous spillovers by instrumenting average hours worked in the reference group with hours worked in neighboring reference groups. Estimates of the canonical labor supply model indicate positive economically important spillovers for adult men. The estimated total wage elasticity of labor supply is 0.22, where 0.08 is the exogenous wage change effect and 0.14 is the social interactions effect. We demonstrate how ignoring or incorrectly considering social interactions can mis-estimate the labor supply response of tax reform by as much as 60 percent

County Characteristics and Poverty Spell Length

*In this paper we ask, how do individual and community factors influence the average length of poverty spells? We measure local economic conditions by the county unemployment rate and neighborhood spillover effects by the racial makeup and poverty rate of the county. We find that moving an individual from one standard deviation below the mean poverty rate to one standard deviation above the mean poverty rate (from the inner city to the suburbs) lowers the average poverty spell by 20 to 25 percent. This effect is equal in magnitude to the effect of changing the household head from female to male. Also, we find that when we control for the demographic, human capital, and county level effects the conditional effect for high school graduates is only 2 months (85 percent smaller than the unconditional effect), black poverty spells are 7.8 months (half of the unconditional effect), and female headed households increase length of spells by 7.7 months (only 20 percent shorter than the unconditional effect)

Survive Then Thrive: Talent, Research Motivation, and Completing the Economics Ph.D.

This study investigates the completion of the Ph.D. in Economics. We use ex ante information, based solely upon reviewing a set of individual applications from former doctoral students. Estimation for determining success is done by logit, multinomial logit, and generalized ordered logit. We find that students need different skills and attributes to succeed at each distinct and sequential stage of the doctoral program. Significant determinants for passing the comprehensive exams include high GRE verbal and quantitative scores, a Masters degree, and a prior focus on economics. Research motivation and math preparation play significant roles in completing the dissertation, but having a Masters degree and economics preparation becomes insignificant. GRE scores disappear as a significant determinant for completion in the generalized ordered logit estimates, which emphasize the sequential nature of the Economics Ph.D. program

Social Interactions in the Labor Market

We examine theoretically and empirically social interactions in labor markets and how policy prescriptions can change dramatically when there are social interactions present. Spillover effects increase labor supply and conformity effects make labor supply perfectly inelastic at a reference group average. The demand for a good may also be influenced by either a spillover effect or a conformity effect. Positive spillover increases the demand for the good with interactions, and a conformity effect makes the demand curve pivot to become less price sensitive. Similar social interactions effects appear in the associated derived demands for labor. Individual and community factors may influence the average length of poverty spells. We measure local economic conditions by the county unemployment rate and neighborhood spillover effects by the racial makeup and poverty rate of the county. We find that moving an individual from one standard deviation above the mean poverty rate to one standard deviation below the mean poverty rate (from the inner city to the suburbs) lowers the average poverty spell by 20–25 percent. We further consider overall labor market outcomes by examining theoretically the socially optimal wealth distribution. Interdependence in utility can mitigate the need to transfer wealth to low-wage individuals and may require them to be poorer by all objective measures. Finally, we quantify how labor market policy changes when there are household social interactions. Labor supply estimates indicate positive economically important spillovers for adult U.S. men. Ignoring or incorrectly considering social interactions can mis-estimate the labor supply response of tax reform in the United States by as much as 60 percent

Social Interactions in the Labor Market

We examine theoretically and empirically social interactions in labor markets and how policy prescriptions can change dramatically when there are social interactions present. Spillover effects increase labor supply and conformity effects make labor supply perfectly inelastic at a reference group average. The demand for a good may also be influenced by either a spillover effect or a conformity effect. Positive spillover increases the demand for the good with interactions, and a conformity effect makes the demand curve pivot to become less price sensitive. Similar social interactions effects appear in the associated derived demands for labor. Individual and community factors may influence the average length of poverty spells. We measure local economic conditions by the county unemployment rate and neighborhood spillover effects by the racial makeup and poverty rate of the county. We find that moving an individual from one standard deviation above the mean poverty rate to one standard deviation below the mean poverty rate (from the inner city to the suburbs) lowers the average poverty spell by 20-25 percent. We further consider overall labor market outcomes by examining theoretically the socially optimal wealth distribution. Interdependence in utility can mitigate the need to transfer wealth to low-wage individuals and may require them to be poorer by all objective measures. Finally, we quantify how labor market policy changes when there are household social interactions. Labor supply estimates indicate positive economically important spillovers for adult U.S. men. Ignoring or incorrectly considering social interactions can mis-estimate the labor supply response of tax reform in the United States by as much as 60 percent