Photographer: Jason Alden/Bloomberg

Facebook Friends From Far Away Are a Trait of Rich Communities

More education or trade translates to more geographically diverse friends
From

Networks matter. Now there's a more robust way to keep track of social ones. 

New research from Facebook economist Michael Bailey and co-authors from New York University to Princeton University shows how friend groups link up geographically in the U.S. and then with users abroad. It's the first item in today's economic research wrap, which also looks at the decline in U.S. income convergence and the perks of a dual monetary policy mandate and legalized marijuana. 

Check back each Tuesday for new and interesting studies from around the world. 
 

What Your Facebook Friends Say About Your Local Economy

U.S. counties where residents have more geographically diverse Facebook friends also tend to be richer, more educated, and have longer life expectancy, based on new research.

Trade with foreign countries is related with international social connectedness, the economists find. When it comes to global ties, there's also a diaspora effect at play: when migrants move into an area, they retain social-network connections to their home countries. For instance, there's parts of Montana and North Dakota with high connectivity to South Africa, which probably owes to an influx of South African farmhands to the area. 

Interestingly, Americans generally keep their friends close to home. About 63 percent of friends live within 100 miles for the population of the average county. As you can see in the chart above, this varies hugely between the most- and least-externally connected counties. 

Why do these findings matter? Social networks help to spread sentiment, for one thing, so this map of ties might help explain the ways in which economic confidence or pessimism evolve. It could also be helpful in predicting the spread of contagious disease, in targeting advertising, and in deciding whether transportation links make sense, the authors say. 

Measuring Social Connectedness
Published July 2017
Available on the NBER website

America's Poorer Regions Are No Longer Catching Up

Income convergence across the U.S. has stalled as homes in high-income areas became pricier and returns to education became larger, new research from University of Chicago's Peter Ganong and Harvard's Daniel Shoag shows. 

Housing forms a key part of this equation. While both a janitor and a lawyer in Alabama could have raised their salaries by moving to New York throughout much of the 20th century, today the janitor wouldn't earn enough of a premium to offset the additional New York rent. The lawyer would still move, but the janitor wouldn't — helping to concentrate high earners in one area. 

The regional trends matter to national trends. Cross-state convergence in wages probably accounted for about a third of the decline in hourly earnings inequality between 1940 and 1980, the authors estimate. Had convergence kept up through 2010, the increase in hourly wage inequality would have been 8 percent smaller. Instead, it broke down after 1980. "Thus, our results imply that forces such as housing regulation that slow regional convergence also increase inequality," the authors write. 

Why Has Regional Income Convergence in the U.S. Declined?
Published July 2017
Available at the NBER website

Does a Dual Mandate Make Sense?

Unlike its counterparts such as the European Central Bank, the U.S. Federal reserve has a dual mandate: it strives for  both price stability and maximum employment. Some say the second half of that mandate is redundant or even harmful, including Vice President Mike Pence, who called for the Fed to drop its employment goal while he was a House lawmaker. 

Now the International Monetary Fund is weighing in. The IMF says that their analysis shows that including resource utilization-related variables in the central bank's mandate improves welfare, a fact that holds up when factoring in the zero lower bound on interest rates. "Looking at measures of economic activity seems to be more important than previously recognized in academia and in policy circles,'' the authors write. 

Designing a Simple Loss Function for Central Banks: Does a Dual Mandate Make Sense?
Publishes July 2017
Available at the IMF website

How Legal Pot Impacts Local Crime

Legalized marijuana seems to have cut crime in Denver, according to research from the Federal Reserve Bank of Philadelphia. Pot dispensaries are located in neighborhoods that tend to be high-poverty with a larger minority population, and they seem to have ushered in lower instances of trespassing, public order crimes, criminal mischief, and simple assault. "Reductions in specific crimes are consistent with the disruption of illicit markets, and there is no evidence that increased marijuana use itself results in additional crime," the authors write. 

How big is this effect? An additional dispensary per 10,000 residents is associated with a reduction of 17 crimes per month —substantial, given that a group that size sees 90 crimes per month, on average.

Not in My Backyard? Not So Fast. The Effect of Marijuana Legalization on Neighborhood Crime
Published July 12
Available at the Philadelphia Fed website

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