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Peer Effects in Employment: Results from Mexico's Poor Rural Communities

Abstract Empirical evidence has shown that off-farm non-agricultural (OFNA) employment offers a major pathway from rural poverty. However, participation in OFNA employment is heterogeneous across categories of individuals and is poorly understood. We explore the role of spillovers from peers on an individual's participation in formal and informal OFNA employment using data for rural Mexico. We find that peers' participation in OFNA employment has a large impact on an individual's ability to engage in this type of employment, even after controlling for individual attributes and village characteristics. Peer effects are structured by similarities in gender, ethnicity, educational level, and land endowment. While the data do not allow to model endogenous formation of peer groups, by estimating different models, we can confidently reject that the measured peer effects proxy for unobserved individual, village-level, or type effects.