Social interactions, thresholds, and unemployment in neighborhoods

This paper establishes a stylized fact about unemployment in U.S. urban neighborhoods: the relationship between average human capital and the unemployment rate in a given neighborhood is highly nonlinear. Specifically, the predicted unemployment rate for a neighborhood increases dramatically when the fraction of neighborhood residents with college degrees falls below twenty percent. This pattern appears across all of the major U.S. cities. I then use a simple model of neighborhood selection and neighborhood effects on employment to evaluate “epidemic” and “sorting” explanations for this stylized fact

Previous versions:

March 2000 (SFU Discussion Paper 00-12)

November 1999