Party On: The Labor Market Returns to Social Networks in Adolescence

TL;DR

This paper uses a novel method to estimate the causal impact of adolescent friendships on adult earnings, finding that having more friends significantly boosts future income beyond previous estimates.

Contribution

It introduces a new bounding approach to identify the causal returns to adolescent friendships, addressing endogeneity issues in prior research.

Findings

Having one more adolescent friend increases earnings by 7-14%.

The estimated returns are higher than traditional OLS estimates.

Friendship effects on earnings are substantial and robust.

Abstract

We investigate the returns to adolescent friendships on earnings in adulthood using data from the National Longitudinal Study of Adolescent to Adult Health. Because both education and friendships are jointly determined in adolescence, OLS estimates of their returns are likely biased. We implement a novel procedure to obtain bounds on the causal returns to friendships: we assume that the returns to schooling range from 5 to 15% (based on prior literature), and instrument for friendships using similarity in age among peers. Having one more friend in adolescence increases earnings between 7 and 14%, substantially more than OLS estimates would suggest.