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Job Matching, Social Network and Word-of-Mouth Communication

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  • Calvó-Armengol, Antoni
  • Zenou, Yves

Abstract

In our model, workers are embedded within a network of social relationships and can communicate through word-of-mouth. They can find a job either through formal agencies or through informal networks of contacts (word-of-mouth communication). From this micro scenario, we derive an aggregate matching function that has the standard properties but fails to be homogenous of degree one. The latter is due to negative externalities generated by indirect acquaintances (contacts of contacts) that slow down word-of-mouth information transmission, especially in dense networks. We then show that there exists a unique labour market equilibrium and that, because of these negative externalities, the equilibrium unemployment rate increases with the network size in dense networks.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 2797.

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Date of creation: May 2001
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Handle: RePEc:cpr:ceprdp:2797

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Keywords: Job Search; Microfoundation of the Matching Function; Personal Communication; Social Network;

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References

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  1. Peters, Michael, 1991. "Ex Ante Price Offers in Matching Games Non-steady States," Econometrica, Econometric Society, vol. 59(5), pages 1425-54, September.
  2. Fudenberg, Drew & Ellison, Glenn, 1995. "Word-of-Mouth Communication and Social Learning," Scholarly Articles 3196300, Harvard University Department of Economics.
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  8. Antoni Calvó-Armengol & Yves Zenou, 2003. "Social Networks and Crime Decisions: The Role of Social Structure in Facilitating Delinquent Behavior," Working Papers 52, Barcelona Graduate School of Economics.
  9. Finneran, Lisa & Kelly, Morgan, 2003. "Social networks and inequality," Journal of Urban Economics, Elsevier, vol. 53(2), pages 282-299, March.
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  13. 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.
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  18. Coles, Melvyn G & Smith, Eric, 1994. "Cross-Section Estimation of the Matching Function: Evidence from England and Wales," CEPR Discussion Papers 966, C.E.P.R. Discussion Papers.
  19. Mortensen, Dale T. & Vishwanath, Tara, 1994. "Personal contacts and earnings : It is who you know!," Labour Economics, Elsevier, vol. 1(2), pages 187-201, March.
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  21. Ricardo Lagos, 2000. "An Alternative Approach to Search Frictions," Journal of Political Economy, University of Chicago Press, vol. 108(5), pages 851-873, October.
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  25. Topa, Giorgio, 2001. "Social Interactions, Local Spillovers and Unemployment," Review of Economic Studies, Wiley Blackwell, vol. 68(2), pages 261-95, April.
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