Occupational choice and social interactions: A Study of Victorian London∗

This paper presents a multinomial choice model with social interactions and asymmetric influence. Individuals form rational expectations about the behaviour of peers by taking into account their characteristics and the strength of their ties. We show that, thanks to the asymmetries in peer influences, the effect from group members’ expected behaviour (endogenous effect) and the effect from peers’ characteristics (contextual effect) can be separately identified even when unobservables hit the group as a whole (correlated effect). We provide an empirical application to nineteenth century London and explore the importance of social networks in determining occupational choice. As ecclesiastical parishes were at the heart of social identity, social groups are delimited by ecclesiastical parish boundaries. Using census data that pins residential locations down to the street level, we measure the strength of ties between members of a group based on geographical proximity. The unique two-tier administration which attributed the public good provision responsibility to a grouping of parishes allow us to mitigate the self-selection bias. Our results show that social networks were important in determining occupational choice. Failing to allow for group unobservables leads to the overestimation of the true endogenous effect. Once multiple equilibria and group unobservables are accounted for we still find significant and positive effects for individuals unemployed and in industrial occupations, while a significant and negative effect for commercial occupations. Social interactions do not seem to matter for domestic and professional occupations. ∗We are grateful to Syngjoo Choi, Aureo de Paula, Uta Schöenberg, Patrick Bayer, Lawrence Blume, Yann Bramoullé, Antonio Cabrales, Rachel Kranton, Imran Rasul, Martin Weidner, Yves Zenou and audiences at UCL, IFS, EDePo and Cambridge-INET Institute and HCEO Chicago Summer School in Social Economics for valuable comments. We thank the Archaeology Department of the Museum of London for sharing their geographical referencing of London’s historical map. Daniel Felipe Martinez Enriquez assisted us in the extension of this map. The authors acknowledge the use of the UCL Legion High Performance Computing Facility (Legion@UCL), and associated support services, in the completion of this work. Corresponding author: j.a. guerra.09@ucl.ac. uk (José-Alberto Guerra) †Department of Economics, University College London. E-mail: j.a. guerra.09@ucl.ac. uk ‡Department of Economics, University College London. E-mail: myra.mohnen. 09@ucl.ac. uk 1 “Society is tending more and more to spread into classes, – and not merely classes but localised classes, class–colonies. It is not in London merely, nor as a matter of business, and in consequence of the division of labour that this happens. It is not simply that lawyers dwell with lawyers in the Temple, publishers with publishers in the Row, bankers with bankers in Lombard street, merchants with merchants in Mark lane, carriage-makers with carriage-makers in Long Acre, and weavers with weavers in Spitalfields. But there is a much deeper social principle involved in the present increasing tendency to class-colonies. ” — The Economist, June 20, 1857