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Social Networks and Unraveling in Labor Markets

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Abstract

This paper studies the phenomenon of early hiring in entry-level labor markets (e.g. the market for gastroenterology fellowships and the market for judicial clerks) in the presence of social networks. We o¤er a two-stage model in which workers in training institutions reveal information on their own ability over time. In the early stage, workers receive a noisy signal about their own ability. The early information is ?soft?and non-veri?able, and workers can convey the information credibly only to ? rms that are connected to them (potentially via their mentors). At the second stage, ? hard? veri?able (and accurate) information is revealed to the workers and can be credibly transmitted to all ?rms. We characterize the e¤ects of changes to the network structure on the unraveling of the market towards early hiring. Moreover, we show that an e¢ cient design of the matching procedure can prevent unraveling.

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Bibliographic Info

Paper provided by Brown University, Department of Economics in its series Working Papers with number 2010-15.

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Date of creation: 2010
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Handle: RePEc:bro:econwp:2010-15

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Postal: Department of Economics, Brown University, Providence, RI 02912

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Keywords: Networks; market design; unraveling; entry-level labor markets; early hiring;

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References

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  1. 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.
  2. Alvin E Roth & Richard A Posner & Christine Jolls & Christopher Avery, 2007. "The New Market for Federal Judicial Law Clerks," Levine's Bibliography 843644000000000288, UCLA Department of Economics.
  3. Damiano, Ettore & Li, Hao & Suen, Wing, 2004. "Unraveling of Dynamic Sorting," Microeconomics.ca working papers damiano-04-08-11-03-02-02, Vancouver School of Economics, revised 11 Aug 2004.
  4. Niederle, Muriel & Roth, Alvin E., 2009. "Market Culture: How Rules Governing Exploding Offers Affect Market Performance," Scholarly Articles 11077571, Harvard University Department of Economics.
  5. Ostrovsky, Michael & Schwarz, Michael, 2007. "Information Disclosure and Unraveling in Matching Markets," Research Papers 1965, Stanford University, Graduate School of Business.
  6. Fuhito Kojima, 2007. "Matching and Price Competition: Comment," American Economic Review, American Economic Association, vol. 97(3), pages 1027-1031, June.
  7. Muriel Niederle & Alvin E Roth, 2003. "Unraveling Reduces Mobility in a Labor Market: Gastroenterology with and without a Centralized Match," Levine's Working Paper Archive 506439000000000428, David K. Levine.
  8. Coralio Ballester & Antoni Calvó-Armengol & Yves Zenou, 2006. "Who's Who in Networks. Wanted: The Key Player," Econometrica, Econometric Society, vol. 74(5), pages 1403-1417, 09.
  9. Alvin E. Roth, 2007. "What Have We Learned From Market Design?," NBER Working Papers 13530, National Bureau of Economic Research, Inc.
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  13. Muriel Niederle & Alvin E. Roth, 2009. "Market Culture: How Rules Governing Exploding Offers Affect Market Performance," American Economic Journal: Microeconomics, American Economic Association, vol. 1(2), pages 199-219, August.
  14. Halaburda, Hanna, 2010. "Unravelling in two-sided matching markets and similarity of preferences," Games and Economic Behavior, Elsevier, vol. 69(2), pages 365-393, July.
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    • Andrea Galeotti & Sanjeev Goyal & Matthew O. Jackson & Fernando Vega-Redondo & Leeat Yariv, 2010. "Network Games," Review of Economic Studies, Oxford University Press, vol. 77(1), pages 218-244.
  19. Muriel Niederle, 2006. "Competitive Wages in a Match with Ordered Contracts," NBER Working Papers 12334, National Bureau of Economic Research, Inc.
  20. Muriel Niederle & Alvin E. Roth, 2005. "The Gastroenterology Fellowship Market: Should There Be a Match?," American Economic Review, American Economic Association, vol. 95(2), pages 372-375, May.
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  22. Itay Fainmesser, 2010. "Community Structure and Market Outcomes: A Repeated Games in Networks Approach," Working Papers 2010-14, Brown University, Department of Economics.
  23. Roth,Alvin E. & Sotomayor,Marilda A. Oliveira, 1992. "Two-Sided Matching," Cambridge Books, Cambridge University Press, number 9780521437882, April.
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  25. Atila Abdulkadiroglu & Tayfun Sonmez, 1998. "Random Serial Dictatorship and the Core from Random Endowments in House Allocation Problems," Econometrica, Econometric Society, vol. 66(3), pages 689-702, May.
  26. Posner, Richard A. & Avery, Christopher & Jolls, Christine & Roth, Alvin, 2001. "The Market for Federal Judicial Law Clerks," Scholarly Articles 2623748, Harvard University Department of Economics.
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  28. Roth, Alvin E & Xing, Xiaolin, 1994. "Jumping the Gun: Imperfections and Institutions Related to the Timing of Market Transactions," American Economic Review, American Economic Association, vol. 84(4), pages 992-1044, September.
  29. John H. Kagel & Alvin E. Roth, 2000. "The Dynamics Of Reorganization In Matching Markets: A Laboratory Experiment Motivated By A Natural Experiment," The Quarterly Journal of Economics, MIT Press, vol. 115(1), pages 201-235, February.
  30. Roth, Alvin E, 1991. "A Natural Experiment in the Organization of Entry-Level Labor Markets: Regional Markets for New Physicians and Surgeons in the United Kingdom," American Economic Review, American Economic Association, vol. 81(3), pages 415-40, June.
  31. Itay P. Fainmesser & David A. Goldberg, 2011. "Bilateral and Community Enforcement in a Networked Market with Simple Strategies," Working Papers 2011-2, Brown University, Department of Economics.
  32. Abdulkadiroglu, Atila & Sonmez, Tayfun, 1999. "House Allocation with Existing Tenants," Journal of Economic Theory, Elsevier, vol. 88(2), pages 233-260, October.
  33. Hao Li & Wing Suen, 2000. "Risk Sharing, Sorting, and Early Contracting," Journal of Political Economy, University of Chicago Press, vol. 108(5), pages 1058-1087, October.
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Cited by:
  1. Alvin E. Roth, 2010. "Marketplace Institutions Related to the Timing of Transactions," NBER Working Papers 16556, National Bureau of Economic Research, Inc.
  2. Itay P. Fainmesser, 2012. "Community Structure and Market Outcomes: A Repeated Games-in-Networks Approach," American Economic Journal: Microeconomics, American Economic Association, vol. 4(1), pages 32-69, February.
  3. Muriel Niederle & Alvin E. Roth & M. Utku Ünver, 2009. "Unraveling Results from Comparable Demand and Supply: An Experimental Investigation," NBER Working Papers 15006, National Bureau of Economic Research, Inc.
  4. Itay P. Fainmesser & David A. Goldberg, 2011. "Bilateral and Community Enforcement in a Networked Market with Simple Strategies," Working Papers 2011-2, Brown University, Department of Economics.

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