Title

Three essays on the theory and econometrics of social interactions in the labor market

Date of Award

2004

Degree Type

Dissertation

Degree Name

Doctor of Philosophy (PhD)

Department

Economics

Advisor(s)

Thomas J. Kniesner

Keywords

Econometrics, Social interactions, Labor market

Subject Categories

Economics | Labor Economics | Social and Behavioral Sciences

Abstract

My dissertation studies the effects of social interactions on the behavior of economic agents. I investigate the phenomenon of interdependence from the theoretical, econometric, and empirical perspectives and propose a framework of modeling and testing for social interactions.

In the first essay I analyze a demand side of a two-good economy where one of the good's demand is affected by social interactions between consumers. I focus on two types of interactions: a spillover effect in the form of a positive externality from other consumers' choices, and a conformity effect representing a need for making similar choices as other people. I show that a positive spillover effect shifts the demand curve for the good with interactions upwards, whereas the conformity effect makes the demand curve to pivot around the average market demand.

In the second essay I use the example of the labor supply based on a Stone-Geary utility function and I introduce social interactions through the parameter representing the behavioral limit on hours of work, gamma(h). Using the information about empirical distributions of wage rate and non-labor income, as well as the estimated parameters of the Stone-Geary utility function from the literature, I simulate observations on wages and non-labor income and compute resulting demands for hours worked and consumption. I find that ignoring social interactions effects in the estimation equation biases the structural parameters but the elasticities are relatively well estimated.

In the third essay I test econometrically whether there are social interactions present in the labor supply model. The interdependence is defined as a response of individual's hours worked to the mean hours worked in his reference group. The reference group is assumed to include the individuals who share similar age, live in similar family structures, and are close in physical distance, all of which jointly determine the economic distance that reflects the cost of interactions. Results from the linear labor supply model proposed in the literature estimated using instrumental variable technique on the Panel Study of Income Dynamics data from year 1976 indicate the presence of positive spillovers in hours worked.

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