Social Networks and Residential Choice:
Micro Evidence and Equilibrium Implications
with Drew Johnston
Why don’t more people move to places where they can earn higher incomes? We use individual-level data from Facebook to find that social ties play a crucial role in explaining this puzzle: social ties are concentrated locally and shape migration decisions. On average, individuals live within 100 miles of nearly 80% of their friends, with less-educated individuals having even more concentrated social networks. To establish a causal link between the location of one’s friends and migration, we exploit plausibly exogenous variation in the timing of friends’ moves around individuals’ college graduation. Having one more friend in a given commuting zone at the time of graduation increases one’s likelihood of living there by 0.3 percentage points, which is comparable in magnitude to the effect of a $470 increase in annual wages. We incorporate these findings into a spatial equilibrium model and show that the magnitude of social network effects can explain why people stay in poorer places and why less-educated people are much less responsive to economic shocks. Overall, this study shows that social networks play a first-order role – as important or more important than canonical economic factors such as wages and rents – in determining residential choice at the individual and aggregate level.