
Special Issue on Economics Over the Life Cycle:
- Are the Kids All Right?
- Why Aren't More
Women Working? - The Mortality Gap
- Life Cycle Hypothesis
- Do Economists Ever Really Retire?
- Interview with
Jonathan Parker
Special Issue on Economics Over the Life Cycle:
Many of an individual's decisions are influenced by the group of people with whom he or she interacts. Friends, neighbors, classmates, co-workers, and other social contacts are believed to play a fundamental role in one's decision to study, work hard, or commit a crime. They are also thought to play a role in outcomes such as the likelihood of finding a job. Identifying and quantifying such effects is challenging, however.
Economists have adopted different approaches to studying how interactions through social networks affect individual outcomes. Traditionally, the neighborhood has been used as the unit of analysis, on the assumption that the neighborhood is where most social interactions happen. Recent work has studied neighborhood effects by relying on information collected from refugee resettlement programs. The idea is that the social and economic prospects of newly arrived refugees, such as the probability of finding a job, can be attributed to the neighborhood characteristics where the refugees end up residing.
Robert McKenzie, a visiting fellow at the Brookings Institution, has observed, "Refugees don't just come to nations; they move to cities." Cities play an undeniable role in the resettlement of refugees and on their long-run social and economic prospects. This statement, however, can be narrowed down even further: Refugees actually move not only into cities, but also into neighborhoods.
Most refugee resettlement programs around the world are intended to help refugees make a smooth economic transition into their new communities. Understanding how social interactions operate is, therefore, key to evaluating the effectiveness of those programs. Insights from the research on neighborhood effects are valuable to the extent that they may contribute to the design and implementation of effective immigration and refugee policies. This has become an extremely sensitive issue considering the number of individuals fleeing their home countries worldwide has recently reached record numbers.
Quantifying the Effect of Social Networks
The social and economic outcomes for refugees who settle in new locations in a country depend on a variety of forces. Recent academic work has focused on the influence of social interactions at the neighborhood level. A long strand of the literature has examined how neighborhood characteristics affect labor market prospects, education and health outcomes, and criminal activities of residents.
For researchers, identifying and quantifying the effects of social interactions on individual behavior are made more difficult by multiple causation. Any attempt to do so must take into account the fact that households with different characteristics commonly sort themselves into different types of locations. Suppose that one would like to examine whether residing in a deprived neighborhood (for example, a neighborhood with a high unemployment rate) affects a resident's labor market opportunities. To quantify the impact of the neighborhood on individual outcomes, the researcher has to take into account that this type of neighborhood might attract individuals with characteristics that would make him or her less likely to find a job. For instance, individuals who select to reside in those high unemployment neighborhoods may tend to be low-skill workers or are already unemployed. If this is the case, poor neighborhoods and poor labor market outcomes will be positively associated. But it is not necessarily correct to conclude that neighborhood characteristics are the cause of the poor outcomes. In order to assess how the neighborhood affects individual outcomes and to determine the precise causality, an exogenous or random allocation of individuals across neighborhoods is required.
To overcome this problem, some novel research has used data collected through "social experiments." In a social experiment, individuals or households are randomly assigned into two groups: a group that receives the treatment or participates in the program under study (the treatment group) and another group that does not (the control group). An advantage of this kind of approach — for example, when evaluating the effect of neighborhoods on outcomes — is that the assignment of individuals is random, so the differences across neighborhoods where people reside can be reasonably viewed as exogenous. The experiment thus minimizes the chances of observing outcomes influenced by the fact that some types of individuals or households may prefer a neighborhood with certain characteristics.
Two main types of social experiments have received most of the attention. The first one is the Moving to Opportunity (MTO) experiment. MTO is a federal housing voucher program targeted to low-income households residing in poor neighborhoods. This program offered housing vouchers to randomly selected households residing in poor areas to pay for their housing rents. Those vouchers, however, could only be used in low-poverty neighborhoods. The experiment was conducted in five cities (Baltimore, Boston, Chicago, Los Angeles, and New York) from 1994 to 1998, and it intended to study the social and economic effects on low-income households from moving to low-poverty neighborhoods.
Other research has used data collected from refugee resettlement programs. The idea is that since locations are not selected by refugees, the assignment of refugees across different locations is exogenous. The conclusions of this research on refugee resettlement may not only help in the design and improvement of policies concerning refugees, an issue that has received a lot of attention in the last couple of years worldwide, but also shed light on how social networks and neighborhoods affect individuals' outcomes in general.
Refugee Resettlement Programs in the United States
The design and implementation of refugee resettlement programs vary across countries. In general, programs usually provide temporary assistance to newly arrived refugees and provide support throughout the settlement process. The main feature of most programs is that the assistance is intended to help refugees achieve self-sufficiency and become integrated members of the community as soon as possible. After receiving this initial support from the host government, their economic success will, among other things, be tied to the characteristics of the place where they end up residing. An appropriate evaluation of refugee resettlement programs should, therefore, take neighborhood effects into consideration.
In the United States, the Refugee Act of 1980 sets the foundation of the federal refugee resettlement program. This program determines eligibility for refugee status, establishes admissions procedures, defines the type of assistance granted to refugees, and provides guidelines concerning the resettlement process. The United States has historically led all nations in accepting and resettling refugees. Since the beginning of the European refugee crisis in 2015, however, other countries have been obligated to assume a much more important role. (See "A Fresh Look at the 'Huddled Masses,'" Econ Focus, Third Quarter 2015.)
A maximum number of refugees are allowed to enter the United States every year. This ceiling is determined by the president in consultation with Congress. The highest annual ceiling was set at 231,700 admissions in 1980. This number has changed through the years for a variety of reasons, including worldwide population migration, worldwide economic conditions, and domestic political factors. From 2001 until 2015, the ceiling has fluctuated between 70,000 and 80,000. In 2016, it was raised to 85,000, and the proposed ceiling for 2017 is 110,000. The number of actual arrivals has generally fallen below the ceiling; since 2013, however, it has always reached the established maximum. (See chart below.)
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