Social Identity and Economic Policy

Annual Review of Economics, Vol.12, Forthcoming

47 Pages Posted: 27 Aug 2019 Last revised: 30 Apr 2020

See all articles by Moses Shayo

Moses Shayo

The Hebrew University of Jerusalem - Department of Economics

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Date Written: January 30, 2020

Abstract

I review evidence that individuals associate themselves—or identify—with groups in two fundamental ways: ingroup bias, and conformity to group norms. The evidence spans many spheres of economic activity including consumption, production, hiring, promotion, education, cooperation, financial investments and law enforcement. Group identities are not fixed, even when it comes to ethnic and religious identities. I argue that the choice of identity can be captured by a simple trade-off between gains from group status and costs to distance from the group. I outline a simple conceptual framework that captures the main empirical regularities, and illustrate how it can be used to study the two-way interaction between economic policy and social identity. The analysis implies, e.g., that inequality and immigration of low skilled workers can strengthen nationalism and reduce redistribution; and that changes in the economic environment can produce shifts in identification patterns that feed into trade policy. Finally, I discuss needed developments of the theory and domains where the interaction between identity and economic activity is not well understood. This includes the provision of public services, the evolution of gender norms, and the use of identity to motivate workers.

Suggested Citation

Shayo, Moses, Social Identity and Economic Policy (January 30, 2020). Annual Review of Economics, Vol.12, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3438743

Moses Shayo (Contact Author)

The Hebrew University of Jerusalem - Department of Economics ( email )

Mount Scopus
Jerusalem, Jerusalem 91905
Israel

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