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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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  3. Fréchette, Guillaume & Unver, M. Utku & Roth, Alvin, 2007. "Unraveling Yields Inefficient Matchings: Evidence from Post-Season College Football Bowls," Scholarly Articles 2570385, Harvard University Department of Economics.
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  9. Halaburda, Hanna, 2010. "Unravelling in two-sided matching markets and similarity of preferences," Games and Economic Behavior, Elsevier, Elsevier, vol. 69(2), pages 365-393, July.
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  15. Muriel Niederle & Alvin E. Roth, 2003. "Unraveling Reduces Mobility in a Labor Market: Gastroenterology with and without a Centralized Match," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 111(6), pages 1342-1352, December.
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  25. Christopher Avery & Christine Jolls & Richard Posner & Alvin E. Roth, 2007. "The New Market for Federal Judicial Law Clerks," NBER Working Papers 13213, National Bureau of Economic Research, Inc.
  26. Li, Hao & Rosen, Sherwin, 1998. "Unraveling in Matching Markets," American Economic Review, American Economic Association, American Economic Association, vol. 88(3), pages 371-87, June.
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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, 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, Brown University, Department of Economics 2011-2, Brown University, Department of Economics.

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