Social Interactions, Thresholds, and Unemployment in Neighborhoods," working paper

This paper nds that the predicted unemployment rate in a com-munity increases dramatically when the fraction of neighborhood resi-dents with college degrees drops below twenty percent. This threshold behavior provides empirical support for \epidemic " theories of inner-city unemployment. Using a structural model with unobserved neigh-borhood heterogeneity in productivity due to sorting, I show that sorting alone cannot generate the observed thresholds without also implying an implausible shape for the wage distribution. This pro-vides further evidence that true social interaction eects are driving the earlier results