Scandinavian Working Papers in Economics

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
Additional contact information
Peter Hedström: Nuffield College, Oxford University
Ann-Sofie Kolm: Uppsala University and IFAU - Institute for Labour Market Policy Evaluation, Postal: P O Box 513, SE-751 20 Uppsala, Sweden
Yvonne Åberg: Department of Sociology, Stockholm University

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

JEL-codes: J64; Z13

41 pages, November 10, 2003

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