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

Place of Work and Place of Residence:

Informal Hiring Networks and Labor Market Outcomes

Patrick Bayer, Stephen L. Ross, and Giorgio Topa

Abstract

We use a novel dataset and 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 sociodemographic
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 employment and wages.

Keywords: Neighborhood Effects, Job Referrals, Social Interactions, Social Networks, Labor

Supply

JEL Codes: J0, J2, J3, J6, R0

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