Referral Networks and the Allocation of Talent
AbstractWe study a model of occupational choice where workers must rely on their social contacts to acquire job vacancy information. Contrary to the existing literature, we allow for worker heterogeneity in terms of their idiosyncratic skill-types. In this case, the allocation of talent (the matching of skills to tasks) becomes a welfare-relevant consideration. A worker’s skill-type determines both his relative cost of specialising in different occupations and his productivity on the job. The model shows that relying on word-of-mouth communication for job search generates both positive externalities (due to improved labour market matching) and negative externalities (due to a poor allocation of talent). Which effect dominates depends on the properties of the job search and productivity functions. Taking into account worker heterogeneity shows that the degree of occupational segregation in competitive labour markets is generally not efficient.
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Bibliographic InfoPaper provided by European University Institute in its series Economics Working Papers with number ECO2012/18.
Date of creation: 2012
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This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-07-23 (All new papers)
- NEP-LAB-2012-07-23 (Labour Economics)
- NEP-URE-2012-07-23 (Urban & Real Estate Economics)
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