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Job matching, social network and word-of-mouth communication

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  • Calvo-Armengol, Antoni
  • Zenou, Yves

Abstract

In our model, workers are embedded within a network of social relationships and can communicate through word-of-mouth. They can find a job either through formal agencies or through informal networks of contacts (word-of-mouth communication). From this micro scenario, we derive an aggregate matching function that has the standard properties but fails to be homogenous of degree one. The latter is due to negative externalities generated by indirect acquaintances (contacts of contacts) that slow down word-of-mouth information transmission, especially in dense networks. We then show that there exists a unique labour market equilibrium and that, because of these negative externalities, the equilibrium unemployment rate increases with the network size in dense networks.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Urban Economics.

Volume (Year): 57 (2005)
Issue (Month): 3 (May)
Pages: 500-522

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Handle: RePEc:eee:juecon:v:57:y:2005:i:3:p:500-522

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Web page: http://www.elsevier.com/locate/inca/622905

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  1. Bala, Venkatesh & Goyal, Sanjeev, 1998. "Learning from Neighbours," Review of Economic Studies, Wiley Blackwell, vol. 65(3), pages 595-621, July.
  2. Antoni Calvó-Armengol & Matthew O. Jackson, 2004. "The Effects of Social Networks on Employment and Inequality," American Economic Review, American Economic Association, vol. 94(3), pages 426-454, June.
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  8. Finneran, Lisa & Kelly, Morgan, 2003. "Social networks and inequality," Journal of Urban Economics, Elsevier, vol. 53(2), pages 282-299, March.
  9. Anthony E. Smith & Yves Zenou, 2002. "Online Appendix to "A Discrete-Time Stochastic Model of Job Matching"," Technical Appendices zenou02, Review of Economic Dynamics.
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  17. Coles, Melvyn G & Smith, Eric, 1994. "Cross-Section Estimation of the Matching Function: Evidence from England and Wales," CEPR Discussion Papers 966, C.E.P.R. Discussion Papers.
  18. Topa, Giorgio, 1997. "Social Interactions, Local Spillovers and Unemployment," Working Papers 97-17, C.V. Starr Center for Applied Economics, New York University.
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  22. Hosios, Arthur J, 1990. "On the Efficiency of Matching and Related Models of Search and Unemployment," Review of Economic Studies, Wiley Blackwell, vol. 57(2), pages 279-98, April.
  23. Peters, Michael, 1991. "Ex Ante Price Offers in Matching Games Non-steady States," Econometrica, Econometric Society, vol. 59(5), pages 1425-54, September.
  24. Kenneth Burdett & Shouyong Shi & Randall Wright, 2001. "Pricing and Matching with Frictions," Journal of Political Economy, University of Chicago Press, vol. 109(5), pages 1060-1085, October.
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