Journal Article

Strength in Numbers: Networks as a Solution to Occupational Traps

Kaivan Munshi

in The Review of Economic Studies

Published on behalf of Review of Economic Studies Ltd

Volume 78, issue 3, pages 1069-1101
Published in print July 2011 | ISSN: 0034-6527
Published online March 2011 | e-ISSN: 1467-937X | DOI: https://dx.doi.org/10.1093/restud/rdq029
Strength in Numbers: Networks as a Solution to Occupational Traps

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  • Information, Knowledge, and Uncertainy
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The “new classical” theory states that families in low-skill occupations with low levels of human capital can stay poor from one generation to the next, while families in high-skill occupations with correspondingly high levels of human capital stay wealthy, despite being endowed with the same level of ability on average. This paper proposes an informal institutional mechanism—the community-based network—through which families belonging to the same neighbourhood or kinship group can bootstrap their way out of such low-skill occupational traps. The insight from the dynamic model that is developed is that once they form, new networks providing mutual support to their members and substituting for inherited parental human capital and wealth will strengthen most rapidly in historically disadvantaged communities, generating a correspondingly high level of intergenerational mobility. These predictions are successfully tested using unique data from India. The analysis in this paper, coupled with an emerging empirical literature on networks and migration, provides a new perspective on mobility in developing countries, with restrictive traditional networks decaying even as new networks supporting collective mobility form and strengthen over time.

Keywords: Intergenerational mobility; Persistent inequality; Occupational traps; Network formation; Network dynamics; Entrepreneurship; Business networks; D85; J62; L14; L22

Journal Article.  16055 words.  Illustrated.

Subjects: Information, Knowledge, and Uncertainy ; Firm Objectives, Organization, and Behaviour ; Mobility, Unemployment, and Vacancies ; Market Structure, Firm Strategy, and Market Performance

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