Advanced Search
MyIDEAS: Login to save this paper or follow this series

Optimal policy and the role of social contacts in a search model with heterogeneous workers

Contents:

Author Info

  • Yuliia Stupnytska

    ()
    (Center for Mathematical Economics, Bielefeld University
    Center for Mathematical Economics, Bielefeld University)

Abstract

This paper develops a search model with heterogeneous workers and social networks. High ability workers are more productive and have a larger number of professional contacts. Firms have a choice between a high cost vacancy in the regular labour market and a low cost job opening in the referral market. In this setting the model predicts that a larger number of social contacts is associated with a larger wage gap between high and low ability workers and a larger difference in the equilibrium unemployment rates. Next we demonstrate that the decentralized equilibrium is inefficient for any value of the bargaining power. There are two reasons for the inefficiency. First, the private gain from creating a job in the referral market is always below the social gain, so the equilibrium unemployment of high ability workers is above its optimal value. Moreover, high ability workers congest the market for low ability workers, so the equilibrium wage inequality is inefficiently large. This is in contrast to the result of Blazquez and Jansen (2008) showing that the distribution of wages is compressed in a search model with heterogeneous workers. Finally, we show that a combination of taxes and subsidies can restore the optimal allocation.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.imw.uni-bielefeld.de/n/upload/paper/621bf66ddb7c962aa0d22ac97d69b793.pdf
File Function: First version, 2013
Download Restriction: no

Bibliographic Info

Paper provided by Bielefeld University, Center for Mathematical Economics in its series Working Papers with number 491.

as in new window
Length: 24 pages
Date of creation: Sep 2013
Date of revision:
Handle: RePEc:bie:wpaper:491

Contact details of provider:
Postal: Postfach 10 01 31, 33501 Bielefeld
Phone: +49(0)521-106-4907
Web page: http://www.imw.uni-bielefeld.de/
More information through EDIRC

Related research

Keywords: social capital; social networks; referrals; wage dispersion; wage compression;

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Robert Shimer, 2005. "The Cyclical Behavior of Equilibrium Unemployment and Vacancies," American Economic Review, American Economic Association, American Economic Association, vol. 95(1), pages 25-49, March.
  2. Robert Shimer, 2005. "The Assignment of Workers to Jobs in an Economy with Coordination Frictions," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 113(5), pages 996-1025, October.
  3. Anna Zaharieva, 2011. "Social Welfare and Wage Inequality in Search Equilibrium with Personal Contacts," Working Papers, Bielefeld University, Center for Mathematical Economics 459, Bielefeld University, Center for Mathematical Economics.
  4. Shouyong Shi, 2002. "A Directed Search Model of Inequality with Heterogeneous Skills and Skill-Biased Technology," Review of Economic Studies, Oxford University Press, vol. 69(2), pages 467-491.
  5. Mortensen, Dale T. & Vishwanath, Tara, 1994. "Personal contacts and earnings : It is who you know!," Labour Economics, Elsevier, Elsevier, vol. 1(2), pages 187-201, March.
  6. Christopher Pissarides, 2007. "The unemployment volatility puzzle: is wage stickiness the answer?," LSE Research Online Documents on Economics, London School of Economics and Political Science, LSE Library 4460, London School of Economics and Political Science, LSE Library.
  7. Michele Pellizzari, 2004. "Do friends and relatives really help in getting a good job?," LSE Research Online Documents on Economics, London School of Economics and Political Science, LSE Library 19980, London School of Economics and Political Science, LSE Library.
  8. Montgomery, James D, 1991. "Social Networks and Labor-Market Outcomes: Toward an Economic Analysis," American Economic Review, American Economic Association, American Economic Association, vol. 81(5), pages 1407-18, December.
  9. Shimer Robert & Smith Lones, 2001. "Matching, Search, and Heterogeneity," The B.E. Journal of Macroeconomics, De Gruyter, De Gruyter, vol. 1(1), pages 1-18, April.
Full references (including those not matched with items on IDEAS)

Citations

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:bie:wpaper:491. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dr. Frederik Herzberg).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.