2 RELATED LITERATURE
In setting forth a new empirical design for detecting and measuring the importance of
neighborhood referrals on labor market outcomes, this paper has two main goals. The first is to
contribute a new methodology that can be used to identify neighborhood effects. The second is to
contribute new results to the empirical literatures on social network effects in job search and
social interactions more generally. In this short section, we describe briefly how our approach
relates to each of these literatures.
The Identification of Neighborhood Effects. The study of the identification of neighborhood
effects is a difficult problem without a completely general solution. An important line of recent
research seeks to identify neighborhood effects by isolating a random component of
neighborhood choice induced by special social experiments. Popkin et al. (1993) pioneered this
approach using data from the Gautreaux Program conducted in Chicago in the late 1970's, which
gave housing vouchers to eligible black families in public housing as part of a court-imposed
public housing de-segregation effort. Similarly, Oreopolous (2003) and Jacob (2005) study the
impact of re-locations arising from administrative assignment to public housing projects in
Toronto and from the demolition of the public housing projects in Chicago, respectively. Most
notably, Katz et. al. (2001) and Ludwig et al. (2001) have used the randomized housing voucher
allocation associated with the Moving To Opportunity demonstration (MTO) to examine the
impact of re-location to neighborhoods with much lower poverty rates on a very wide set of
individual behavioral outcomes including health, labor market activity, crime, education, and
more. Especially in the case of MTO, the advantages of this approach are clear - the
randomization inherent in the program design ensures a clean comparison of treatment and proper
control groups.
There are, however, important limitations in the extent to which the treatment effects
identified through re-location are informative about the nature of general forms of neighborhood
effects per se. First, individuals studied must be eligible for a re-location program in the first
place; this typically implies that the resulting sample is special (i.e. so as to be a resident in public
housing) and may not be as sensitive to neighborhood effects as other individuals. Second, the
experimental design involves re-location to new neighborhoods that are, by design, very different
from baseline neighborhoods; this implies that the identified treatment effect measures the impact
of re-locating to a neighborhood where individuals initially have few social contacts and where
the individuals studied may be very different than the average resident of the new neighborhood.
In this way, the treatment effects identified with this design are necessarily a composite of several