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

We use a novel research design to empirically detect the effect of social interactions among neighbors on labor market outcomes. 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. The estimated referral effect is stronger when individuals are similar in sociodemographic characteristics and when at least one individual is well attached to the labor market. These findings are robust across specifications intended to address individual heterogeneity, sorting, and reverse causation. Further, the increased availability of neighborhood referrals has a significant impact on a wide range of labor market outcomes including labor force participation, hours, and earnings.