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IFAU - Institute for Evaluation of Labour Market and Education Policy Working Paper Series
IFAU - Institute for Evaluation of Labour Market and Education Policy

No 2003:15:
Social interactions and unemployment

Peter Hedström, Ann-Sofie Kolm and Yvonne Åberg

Abstract: This paper is concerned with social interactions and their importance for unemployment. A theoretical model is specified in which the psychological costs of unemployment depend upon the unemployment level. The analysis reveals social multiplier effects, and shows that multiple unemployment equilibria may emerge. Data on all 20- to 24-year-olds living in Stockholm during the 1990s are used to test hypotheses from the model. The results show that individuals’ transition rates out of unemployment is strongly influenced by the unemployment level within their neighborhoods.

Keywords: Social interactions; social norms; social multipliers; unemployment; (follow links to similar papers)

JEL-Codes: J64; Z13; (follow links to similar papers)

41 pages, November 10, 2003

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