Wages and Employment in a Random Social Network with Arbitrary Degree Distribution
AbstractEmpirical studies of labor markets show that social contacts are an important source of job-related information [Ioannides and Loury (2004)]. At the same time, wage differences among workers may be explained only in part by differences in individual background characteristics. Such findings motivate our model in which differences in "social connectedness" among otherwise identical workers result in wage inequality and differences in unemployment rates. The paper is related to theoretical contributions by Calvo- Armengol and Jackson (2004) and Calvo-Armengol and Zenou (2005) and builds on the Pissarides (2000) model. Workers may hear about job openings directly from employers or through their social contacts. We go further by introducing heterogeneity in the number of contacts each worker has with others, i.e. in the workers' degree. We utilize results from the technical literature on random graphs with arbitrary degree distributions [Newman, (2003a)] to account for a consequence of workers' receiving information about job openings from their social contacts: they compete with their social contacts' other contacts. For social networks with arbitrary degree distributions we show that people who are better connected receive a higher wage on average and face a lower unemployment rate. Numerical computations for the specific case in which connections follow a Poisson distribution show that variability in connections can result in substantial variation in the above labor market outcomes.
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Bibliographic InfoPaper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 06-014/1.
Date of creation: 26 Jan 2006
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job search; social networks; arbitrary degree distribution; wage inequality; incidence of unemployment;
Other versions of this item:
- Yannis M. Ioannides & Adriaan R. Soetevent, 2006. "Wages and Employment in a Random Social Network with Arbitrary Degree Distribution," American Economic Review, American Economic Association, vol. 96(2), pages 270-274, May.
- Yannis Ioannides & Adriaan Soetevent, 2006. "Wages and Employment in a Random Social Network with Arbitrary Degree Distribution," Discussion Papers Series, Department of Economics, Tufts University 0601, Department of Economics, Tufts University.
- D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information
- J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
- J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
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