Three Papers On Social Interactions And Labor Market Outcomes

In this dissertation, I study the influences of social interactions on individuals’ labor market outcomes. The first chapter tests for causality in the positive relationship between teenage alcohol consumption and future earnings. Specifically, to investigate this relationship, I exploit the quasi-random variations in high school peer compositions as a treatment to teenage alcohol consumption. By using the National Longitudinal Study of Adolescent Health (Add Health) data, I find that high school peer compositions that cause teenagers to drink more do not have significant influences on their future incomes. This provides indirect evidence that the positive relationship between teenage drinking and future income is not causal. The second chapter examines whether immigrants who are living in ethnic enclaves have labor market advantages. By using 2000 and 2010 U.S. census data and a triple differences model, we find that given the same ethnic group average education, ethnic segregation reduces high-skill immigrants’ wages. This may be because the returns on education are higher for high-skill immigrants when they have more social connections with natives and work in native-dominated labor markets. We also find that as the ethnic group average education decreases, the benefits of ethnic segregation for low-skill immigrants also decrease, likely because competition between low-skill immigrants drives down their wages. The third chapter tests whether teenagers are forward-looking when they choose friends in high school. In particular, we assume that when teenagers choose friends, they consider both immediate payoffs (such as increases in popularity) and long-term economic gains (such as increases in their future earnings) from friendships. Then we estimate which is more important to teenagers when choosing friends, the immediate payoffs or the long-term economic gains. By using Add Health data and a three-period dynamic model, we find that the marginal utility of popularity is much higher than the marginal utility of future earnings, which implies that immediate payoffs are the key factors that influence teenagers’ friendship decisions. Moreover, the outcomes in the heterogeneity tests suggest that African Americans and Hispanics have higher returns on both popularity and future earnings than whites.