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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. Matt Jackson, 2003. "The Effects of Social Networks on Employment and Inequality," Theory workshop papers 658612000000000032, UCLA Department of Economics.
  2. Kenneth Burdett & Shouyong Shi & Randall Wright, 1998. "Pricing with frictions," Working Papers 98-9, Federal Reserve Bank of Philadelphia.
  3. Pissarides, C A, 1979. "Job Matchings with State Employment Agencies and Random Search," Economic Journal, Royal Economic Society, vol. 89(356), pages 818-33, December.
  4. Robert E. Hall, 1978. "A Theory of the Natural Unemployment Rate and the Duration of Employment," NBER Working Papers 0251, National Bureau of Economic Research, Inc.
  5. Mortensen, Dale T. & Pissarides, Christopher A., 1999. "New developments in models of search in the labor market," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 39, pages 2567-2627 Elsevier.
  6. 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.
  7. Barbara Petrongolo & Christopher Pissarides, 2000. "Looking into the black box: a survey of the matching function," LSE Research Online Documents on Economics 2122, London School of Economics and Political Science, LSE Library.
  8. Peters, Michael, 1991. "Ex Ante Price Offers in Matching Games Non-steady States," Econometrica, Econometric Society, vol. 59(5), pages 1425-54, September.
  9. Calvó-Armengol, Antoni & Zenou, Yves, 2003. "Social Networks and Crime Decisions: The Role of Social Structure in Facilitating Delinquent Behavior," Working Paper Series 601, Research Institute of Industrial Economics.
  10. Smith, Tony E & Zenou, Yves, 2001. "A Discrete-Time Stochastic Model of Job Matching," CEPR Discussion Papers 3044, C.E.P.R. Discussion Papers.
  11. Topa, Giorgio, 2001. "Social Interactions, Local Spillovers and Unemployment," Review of Economic Studies, Wiley Blackwell, vol. 68(2), pages 261-95, April.
  12. Olivier Jean Blanchard & Peter Diamond, 1990. "Ranking, Unemployment Duration, and Wages," NBER Working Papers 3387, National Bureau of Economic Research, Inc.
  13. Kenneth Burdett & Shouyong Shi & Randall Wright, 2001. "Pricing and Matching with Frictions," Journal of Political Economy, University of Chicago Press, vol. 109(5), pages 1060-1085, October.
  14. 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.
  15. Hosios, Arthur J, 1990. "On the Efficiency of Matching and Related Models of Search and Unemployment," Review of Economic Studies, Wiley Blackwell, vol. 57(2), pages 279-98, April.
  16. Holzer, Harry J, 1988. "Search Method Use by Unemployed Youth," Journal of Labor Economics, University of Chicago Press, vol. 6(1), pages 1-20, January.
  17. P. Diamond, 1980. "Mobility Costs, Frictional Unemployment and Efficiency," Working papers 257, Massachusetts Institute of Technology (MIT), Department of Economics.
  18. Ellison, Glenn & Fudenberg, Drew, 1995. "Word-of-Mouth Communication and Social Learning," The Quarterly Journal of Economics, MIT Press, vol. 110(1), pages 93-125, February.
  19. Finneran, Lisa & Kelly, Morgan, 2003. "Social networks and inequality," Journal of Urban Economics, Elsevier, vol. 53(2), pages 282-299, March.
  20. Matthew O. Jackson & Asher Wolinsky, 1995. "A Strategic Model of Social and Economic Networks," Discussion Papers 1098R, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  21. Coles, Melvyn G & Smith, Eric, 1996. "Cross-Section Estimation of the Matching Function: Evidence from England and Wales," Economica, London School of Economics and Political Science, vol. 63(252), pages 589-97, November.
  22. Bala, Venkatesh & Goyal, Sanjeev, 1998. "Learning from Neighbours," Review of Economic Studies, Wiley Blackwell, vol. 65(3), pages 595-621, July.
  23. Ricardo Lagos, 2000. "An Alternative Approach to Search Frictions," Journal of Political Economy, University of Chicago Press, vol. 108(5), pages 851-873, October.
  24. Christopher A. Pissarides, 2000. "Equilibrium Unemployment Theory, 2nd Edition," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262161877, December.
  25. Butters, Gerard R, 1977. "Equilibrium Distributions of Sales and Advertising Prices," Review of Economic Studies, Wiley Blackwell, vol. 44(3), pages 465-91, October.
  26. Anthony E. Smith & Yves Zenou, 2002. "Online Appendix to "A Discrete-Time Stochastic Model of Job Matching"," Technical Appendices zenou02, Review of Economic Dynamics.
  27. Calvo-Armengol, Antoni, 2004. "Job contact networks," Journal of Economic Theory, Elsevier, vol. 115(1), pages 191-206, March.
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