Do friends and relatives really help in getting a good job?
AbstractInformal contacts are extensively used by both firms and workers to find jobs and fill vacancies. The common wisdom in the economic literature is that jobs created through this channel are of better quality and pay higher wages than jobs created through formal methods. This paper explores the empirical evidence for European countries using the European Community Household Panel (ECHP) and discovers a large cross-country as well as cross-industry variation in the wage differentials between jobs found through informal and formal methods. Across countries and industries wage premiums and wage penalties to finding jobs through personal contacts are equally frequent. This paper argues that such variation can be explained by looking at firms' recruitment strategies. In labour markets where employers invest largely in formal recruitment activities, matches created through this channel are likely to be of average better quality than those created through informal networks. A simple theoretical model is used to show that employers invest more in recruitment for high productivity jobs and for positions that require considerable training. The empirical predictions of the theory are successfully tested using industry-level data on recruitment costs.
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Bibliographic InfoPaper provided by London School of Economics and Political Science, LSE Library in its series LSE Research Online Documents on Economics with number 19980.
Length: 59 pages
Date of creation: Mar 2004
Date of revision:
Social Networks; Wage Differentials; Recruitment; Hiring;
Other versions of this item:
- Michele Pellizzari, 2010. "Do Friends and Relatives Really Help in Getting a Good Job?," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 63(3), pages 494-510, April.
- Michele Pellizzari, 2004. "Do Friends and Relatives Really Help in Getting a Good Job?," CEP Discussion Papers dp0623, Centre for Economic Performance, LSE.
- J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
- J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
- M51 - Business Administration and Business Economics; Marketing; Accounting - - Personnel Economics - - - Firm Employment Decisions; Promotions
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