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Double Matching: Social Contacts in a Labour Market with On-the-Job Search

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  • Anna Zaharieva

    (Bielefeld University)

Abstract

This paper develops a labour market matching model with heterogeneous firms, on-thejob search and referrals. Social capital is endogenous, so that better connected workers bargain higher wages for a given level of productivity. This is a positive effect of referrals on reservation wages. At the same time, employees accept job offers from more productive employers and forward other offers to their unemployed social contacts. Therefore, the average productivity of a referred worker is lower than the average productivity in the market. This is a negative selection effect of referrals on wages. In the equilibrium, wage premiums (penalties) associated with referrals are more likely in labour markets with lower (higher) productivity heterogeneity and lower (higher) worker’s bargaining power. Next, the model is extended to allow workers help each other climb a wage ladder. On-the-job search is then intensified and wage inequality is reduced as workers employed in high paid jobs pool their less successful contacts towards the middle range of the productivity distribution.

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Bibliographic Info

Paper provided by Bielefeld University, Center for Mathematical Economics in its series Working Papers with number 473.

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Length: 33 pages
Date of creation: Dec 2012
Date of revision:
Handle: RePEc:bie:wpaper:473

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  1. Fontaine, Francois, 2005. "Why Are Similar Workers Paid Differently? The Role of Social Networks," IZA Discussion Papers 1786, Institute for the Study of Labor (IZA).
  2. Montgomery, James D, 1991. "Social Networks and Labor-Market Outcomes: Toward an Economic Analysis," American Economic Review, American Economic Association, vol. 81(5), pages 1407-18, December.
  3. Antoni Calvó-Armengol & Matthew O. Jackson, 2003. "Networks in Labor Markets: Wage and Employment Dynamics and Inequality," Working Papers 55, Barcelona Graduate School of Economics.
  4. Addison, John T. & Portugal, Pedro, 2001. "Job Search Methods and Outcomes," IZA Discussion Papers 349, Institute for the Study of Labor (IZA).
  5. Penn State & Manolis Galenianos, 2008. "Hiring through Referrals," 2008 Meeting Papers 672, Society for Economic Dynamics.
  6. Tumen, Semih, 2013. "Informal versus Formal Search: Which Yields a Better Pay?," MPRA Paper 50446, University Library of Munich, Germany.
  7. Michele Pellizzari, 2004. "Do Friends and Relatives Really Help in Getting a Good Job?," CEP Discussion Papers dp0623, Centre for Economic Performance, LSE.
  8. Yannis M. Ioannides & Adriaan R. Soetevent, 2006. "Wages and Employment in a Random Social Network with Arbitrary Degree Distribution," American Economic Review, American Economic Association, vol. 96(2), pages 270-274, May.
  9. Mauro Sylos Labini, 2004. "Social Networks and Wages: It's All About Connections!," LEM Papers Series 2004/10, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
  10. Simon, Curtis J & Warner, John T, 1992. "Matchmaker, Matchmaker: The Effect of Old Boy Networks on Job Match Quality, Earnings, and Tenure," Journal of Labor Economics, University of Chicago Press, vol. 10(3), pages 306-30, July.
  11. Yannis M. Ioannides & Adriaan R. Soetevent, 2006. "Wages and Employment in a Random Social Network with Arbitrary Degree Distribution," Tinbergen Institute Discussion Papers 06-014/1, Tinbergen Institute.
  12. François Fontaine, 2008. "Do workers really benefit from their social networks?," Recherches économiques de Louvain, De Boeck Université, vol. 74(1), pages 5-31.
  13. Pissarides, Christopher A, 1994. "Search Unemployment with On-the-Job Search," Review of Economic Studies, Wiley Blackwell, vol. 61(3), pages 457-75, July.
  14. Eric Delattre & Mareva Sabatier, 2007. "Social Capital and Wages: An Econometric Evaluation of Social Networking's Effects," LABOUR, CEIS, vol. 21(2), pages 209-236, 06.
  15. Shimer, Robert, 2006. "On-the-job search and strategic bargaining," European Economic Review, Elsevier, vol. 50(4), pages 811-830, May.
  16. Jolivet, Gregory & Postel-Vinay, Fabien & Robin, Jean-Marc, 2006. "The empirical content of the job search model: Labor mobility and wage distributions in Europe and the US," European Economic Review, Elsevier, vol. 50(4), pages 877-907, May.
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Cited by:
  1. Zaharieva, Anna, 2013. "Social welfare and wage inequality in search equilibrium with personal contacts," Labour Economics, Elsevier, vol. 23(C), pages 107-121.
  2. Tumen, Semih, 2013. "Informal versus Formal Search: Which Yields a Better Pay?," MPRA Paper 50446, University Library of Munich, Germany.
  3. Yuliia Stupnytska, 2014. "Explaining the U-Shape of the Referral Hiring Pattern in a Search Model with Heterogeneous Workers," Working Papers 511, Bielefeld University, Center for Mathematical Economics.

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