Place of Work and Place of Residence: Informal Hiring Networks and Labor Market Outcomes

Abstract

We use a novel research design to empirically detect the effect of social interactions among neighbors on labor market outcomes. Specifically, using Census data that characterize residential and employment locations down to the city block, we examine whether individuals residing in the same block are more likely to work together than those in nearby blocks. We find evidence of significant social interactions operating at the block level: residing on the same versus nearby blocks increases the probability of working together by over 33 percent. The results also indicate that this referral effect is stronger when individuals are similar in socio-demographic characteristics (e.g., both have children of similar ages) and when at least one individual is well attached to the labor market. These findings are robust across various specifications intended to address concerns related to sorting and reverse causation. Further, having determined the characteristics of a pair of individuals that lead to an especially strong referral effect, we provide evidence that the increased availability of neighborhood referrals has a significant impact on a wide range of labor market outcomes including labor force participation, hours and earnings.

Social capital access and entrepreneurship

“…Thus, our paper contributes to the literature on social capital and how it affects different economic outcomes such as new firm location (Michelacci and Silva, 2007), financial development (Guiso et al, 2004), job availability (Bayer et al, 2008), or growth (e.g., Knack and Keefer, 1997;Routledge and von Amsberg, 2003). 7 We claim that we can isolate a small community mark-up effect of club memberships on entrepreneurship.…”

Social interaction at work

“…Bayer, Ross, and Topa (2008) use a similar regression strategy to study the role of informal networks in job hiring.H.K. Hvide, P. Östberg / Journal of Financial Economics 117 (2015) 628-652…”

The Economics of Social Interactions: An Interdisciplinary Ground for Social Scientists?

“…This delineation, as pointed out by the sociological and geographic literature on social networks, might not be very meaningful in assessing the effects of networks, as individuals underlie the influence of social settings which are much smaller and more concentrated. Bayer et al (2005) try to overcome this problem by adopting a new empirical approach designed to identify the effects of social interactions. The authors use observational data and succeed in narrowly defining neighborhoods (and thus social networks) by isolating block-level variation in the characteristics of neighbors.…”

“…Most of the empirical economic studies rely on large datasets such as the US Census (Topa 2001 andBayer et al 2005) or on data gathered from experimental programs (Marmaros and Sacerdote 2002;Katz et al 2000 andLudwig et al 2001) and large surveys (Kuhn andSkuterud 2000 andGranovetter 1995). In order to capture clean evidence of networks effects, this data must control for the fact that, in most cases, social networks defined in administrative terms are not chosen by individuals randomly, but rather reflect personal characteristics such as unobserved preferences and unobserved community features.…”