Personal relationships and economic outcomes

The “Our World in Data” blog had an interesting post on the importance of personal relationships on economic outcomes. They worked off a study that analyzed the impact of the fall of the Berlin Wall to the growth in incomes across Germany. Below is an excerpt.

After the fall of the Berlin Wall in 1989 there was growth in incomes across Germany as a whole; but the interesting finding from Burchardi and Hassan is that income growth for households in West Germany who had ties to at least one relative in the East was much higher – six percentage points higher – than that of comparable households without such ties.

Burchardi and Hassan argue that West German households that had ties to East Germany had a comparative advantage in seizing the new economic opportunities in the East. Having personal relationships with East Germans gave them access to valuable economic information – information regarding local demand conditions, and about the quality of East German assets that were offered to investors.

These gains from social connections actually added up at the regional level. West German regions that had a higher concentration of households with social ties to the East, enjoyed substantially higher growth in incomes in the early 1990s. A one standard deviation rise in the share of households with social ties to East Germany in 1989 was associated with a 4.6 percentage point rise in income per capita over six years.

The other interesting stat was a study from the Pew Research center that looked at how Americans found jobs in 2015.

Two things stood out – ~80% of Americans used online resources and information in 2015. I wonder if that number has gone up to 90% in the 4 years since.

And, second, 60%-70% of Americans mentioned connections in various ways – close friends or family, professional or work connections, and acquaintances. While this finding isn’t at odds with the use of internet tools thanks to the presence of social media, it speaks to the importance of networks in our ability to better our economic standing.

As someone who has been a beneficiary of these very networks, I find myself both grateful for the impact it has had on me and thoughtful about all the work that lies ahead to make these networks more accessible for those that really need it.