Local externalities in labor markets: congestion and information among peers

We explore local externalities in labor markets, exploiting the random assignment of a large-scale internship program in Argentina. Examining the probability of registered employment in the 12 months after the program, we find that applicants are affected by two opposing external effects: those whose closest applicant received the internship have an employment rate 1.8 percentage points higher than the neighbors of non-beneficiary applicants, while those who face the top decile of program saturation in their neighborhood show an employment rate 2.98 percentage points lower than those in the first decile. We posit that the first effect is due to the transmission of relevant labor market information among peers, while the second is due to the increased competition from program beneficiaries. These findings are robust to different specifications and varying neighborhoods.