Working Paper: CEPR ID: DP9805
Authors: Yasuhiro Sato; Yves Zenou
Abstract: We develop a model where the unemployed workers in the city can find a job either directly or through weak or strong ties. We show that, in denser areas, individuals choose to interact with more people and meet more random encounters (weak ties) than in sparsely populated areas. We also demonstrate that, for a low urbanization level, there is a unique steady-state equilibrium where workers do not interact with weak ties, while, for a high level of urbanization, there is a unique steady-state equilibrium with full social interactions. We show that these equilibria are usually not socially efficient when the urban population has an intermediate size because there are too few social interactions compared to the social optimum. Finally, even when social interactions are optimal, we show that there is over-urbanization in equilibrium.
Keywords: Labor Market; Social Interactions; Strong Ties; Urban Economics; Weak Ties
JEL Codes: J61; R14; R23
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Urban Density (R12) | Frequency of Weak Ties (Z13) |
| Urban Density (R12) | Employment Opportunities (J68) |
| Low Urbanization (R19) | No-Interaction Equilibrium (D59) |
| High Urbanization (R11) | Full-Interaction Equilibrium (D59) |
| Urban Population Size (R12) | Social Behavior (Z13) |
| Urbanization (R11) | Utility of Weak Ties for Employment (J62) |
| Optimal Social Interactions (D71) | Overurbanization (R11) |