Understanding personal contacts: an analysis for metropolitan BrazilḌ

Purpose - This paper investigates the relationship between (1) business cycle and use of personal contacts to obtain job and (2) use of personal contacts to obtain job and wages. Design/methodology/approach - For this, we use data from the Monthly Employment Survey (2002–2015) from Brazil which has detailed information on individual and job characteristics. In addition, we investigate the impact of referrals on wage using quantile regressions. Findings - Time-varying parameter estimates indicate that the relationship between business cycle and use of personal contacts became less countercyclical over time. In general, they show that there is more evidence of a slow changing relationship between personal contacts and the business cycle over time rather than a sudden and discrete one. Using quantile regressions, we observed that, controlling for similar observable characteristics, and including unobserved heterogeneity, wage differences between workers using personal contacts versus workers using others channels disappear. The evidences indicate that workers resort to personal contacts because of valuation of non-pecuniary job characteristics. Practical implications - The results suggest that, in designing subsidy or affirmative action programs, attention to network effects is important. Social networks can help labor markets run more smoothly by alleviating information frictions. Originality/value - This study extends the existing literature by providing empirical evidence of the use of personal contacts for the Brazil. Although there are many studies and methods for measuring use of personal contacts, to our knowledge, there are no studies using a time-varying parameters model.