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Do Workers Really Benefit From Their Social Networks?

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  • Fontaine, Francois

    ()
    (University of Nancy)

Abstract

This paper provides a simple matching model in which unemployed workers and employers in large firms can be matched together through social networks or through more "formal" methods of search. We show that networks do not necessarily add new externalities and that some results previously obtained in the literature are questionable. Nevertheless, social networks can, in some case, substitute for labor market and this crowding-out effect may be socially costly. We show that a policy increasing the number of workers embedded in the social networks can increase the unemployment rate and decrease workers welfare. Since it is mostly the firms which benefit from larger social networks, transfers from the firms to the workers are necessary to make larger access to the social networks efficient.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 1282.

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Length: 32 pages
Date of creation: Sep 2004
Date of revision:
Publication status: published in: Recherches Économique de Louvain / Louvan Economic Reivew, 2008, 74 (1), 5-31
Handle: RePEc:iza:izadps:dp1282

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Keywords: economic policy; matching; social networks; unemployment;

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References

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  1. Javier Suarez & Samuel Bentolila & Claudio Michelacci, 2004. "Social Contacts and Occupational Choice," 2004 Meeting Papers 593, Society for Economic Dynamics.
  2. Samuel Bentolila & Andrea Ichino, 2000. "Unemployment and Consumption: Are Job Losses Less Painful near the Mediterranean?," CESifo Working Paper Series 372, CESifo Group Munich.
  3. Calvó-Armengol, Antoni & Zenou, Yves, 2001. "Job Matching, Social Network and Word-of-Mouth Communication," Seminar Papers, Stockholm University, Institute for International Economic Studies 695, Stockholm University, Institute for International Economic Studies.
  4. Cahuc, Pierre & Postel-Vinay, Fabien & Robin, Jean-Marc, 2003. "Wage Bargaining with On-The-Job Search: Theory and Evidence," CEPR Discussion Papers, C.E.P.R. Discussion Papers 4154, C.E.P.R. Discussion Papers.
  5. John T. Addison & Pedro Portugal, 2002. "Job search methods and outcomes," Oxford Economic Papers, Oxford University Press, vol. 54(3), pages 505-533, July.
  6. Albrecht, James & Gautier, Pieter & Vroman, Susan, 2003. "Equilibrium Directed Search with Multiple Applications," IZA Discussion Papers 719, Institute for the Study of Labor (IZA).
  7. Kugler, Adriana D., 2003. "Employee referrals and efficiency wages," Labour Economics, Elsevier, Elsevier, vol. 10(5), pages 531-556, October.
  8. Barbara Petrongolo & Christopher A. Pissarides, 2000. "Looking Into the Black Box: A Survey of the Matching Function," CEP Discussion Papers dp0470, Centre for Economic Performance, LSE.
  9. Gregg, Paul & Wadsworth, Jonathan, 1996. "How Effective Are State Employment Agencies? Jobcentre Use and Job Matching in Britain," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 58(3), pages 443-67, August.
  10. David Margolis & Véronique Simonnet, 2002. "Educational Track, Networks and Labor Market Outcomes," Working Papers, Centre de Recherche en Economie et Statistique 2002-60, Centre de Recherche en Economie et Statistique.
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  12. Dale T. Mortensen & Christopher A. Pissarides, 1999. "Job Reallocation, Employment Fluctuations and Unemployment," CEP Discussion Papers dp0421, Centre for Economic Performance, LSE.
  13. Cahuc, Pierre & Fontaine, Francois, 2002. "On the Efficiency of Job Search with Social Networks," IZA Discussion Papers 583, Institute for the Study of Labor (IZA).
  14. Holzer, Harry J, 1988. "Search Method Use by Unemployed Youth," Journal of Labor Economics, University of Chicago Press, University of Chicago Press, vol. 6(1), pages 1-20, January.
  15. Antoni Calvó-Armengol & Matthew O. Jackson, 2004. "The Effects of Social Networks on Employment and Inequality," American Economic Review, American Economic Association, American Economic Association, vol. 94(3), pages 426-454, June.
  16. Marmaros, David & Sacerdote, Bruce, 2002. "Peer and social networks in job search," European Economic Review, Elsevier, Elsevier, vol. 46(4-5), pages 870-879, May.
  17. Stole, Lars A & Zwiebel, Jeffrey, 1996. "Intra-firm Bargaining under Non-binding Contracts," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 63(3), pages 375-410, July.
  18. Venkatesh Bala & Sanjeev Goyal, 2000. "A Noncooperative Model of Network Formation," Econometrica, Econometric Society, Econometric Society, vol. 68(5), pages 1181-1230, September.
  19. Stole, Lars A & Zwiebel, Jeffrey, 1996. "Organizational Design and Technology Choice under Intrafirm Bargaining," American Economic Review, American Economic Association, American Economic Association, vol. 86(1), pages 195-222, March.
  20. Hosios, Arthur J, 1990. "On the Efficiency of Matching and Related Models of Search and Unemployment," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 57(2), pages 279-98, April.
  21. Harry J. Holzer, 1987. "Hiring Procedures in the Firm: Their Economic Determinants and Outcomes," NBER Working Papers 2185, National Bureau of Economic Research, Inc.
  22. Simon, Curtis J & Warner, John T, 1992. "Matchmaker, Matchmaker: The Effect of Old Boy Networks on Job Match Quality, Earnings, and Tenure," Journal of Labor Economics, University of Chicago Press, University of Chicago Press, vol. 10(3), pages 306-30, July.
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Citations

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Cited by:
  1. Zaharieva, Anna, 2013. "Social welfare and wage inequality in search equilibrium with personal contacts," Labour Economics, Elsevier, Elsevier, vol. 23(C), pages 107-121.
  2. Francois Fontaine, 2004. "Why are similar workers paid differently? The role of social networks," 2004 Meeting Papers 493, Society for Economic Dynamics.
  3. Zaharieva, Anna, 2013. "Double Matching: Social Contacts in a Labour Market with On-the-Job Search," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79891, Verein für Socialpolitik / German Economic Association.
  4. Marco van der Leij & Sebastian Buhai, 2010. "A Social Network Analysis of Occupational Segregation," 2010 Meeting Papers, Society for Economic Dynamics 554, Society for Economic Dynamics.
  5. Walter Trockel, 2012. "Robustness of Intermediate Agreements for the Discrete Raiffa Solution," Working Papers, Murat Sertel Center for Advanced Economic Studies, Istanbul Bilgi University 201202, Murat Sertel Center for Advanced Economic Studies, Istanbul Bilgi University.
  6. Sabatini, Fabio, 2005. "Social capital, labour precariousness and the economic performance. An empirical assessment of the strength of weak ties in Italy," AICCON Working Papers, Associazione Italiana per la Cultura della Cooperazione e del Non Profit 26-2005, Associazione Italiana per la Cultura della Cooperazione e del Non Profit.

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