Brian Krauth

Paper #: 98-06-049

This paper investigates the properties of a local economy in which personal connections are important in finding jobs. The complementarities in the model generate an interesting nonlinear relationship between the distribution of human capital in the economy, the characteristics of the social network, and equilibrium labor market dynamics. The model is shown to be consistent with a number of stylized facts about the increased neighborhood concentration of poverty since 1970. I argue that this type of model is more consistent with the empirical facts about neighborhood poverty than previous models which focus on human capital accumulation.