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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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  12. Adriana Kugler, 2002. "Employee referrals and efficiency wages," Economics Working Papers 647, Department of Economics and Business, Universitat Pompeu Fabra.
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  20. Harry J. Holzer, 1986. "Search Method Use by Unemployed Youth," NBER Working Papers 1859, National Bureau of Economic Research, Inc.
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Citations

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Cited by:
  1. Walter Trockel, 2012. "Robustness of Intermediate Agreements for the Discrete Raiffa Solution," Working Papers 201202, Murat Sertel Center for Advanced Economic Studies, Istanbul Bilgi University.
  2. Fontaine Francois, 2004. "Why are similar workers paid differently? The role of social networks," Labor and Demography 0408014, EconWPA, revised 09 Sep 2004.
  3. Zaharieva, Anna, 2013. "Social welfare and wage inequality in search equilibrium with personal contacts," Labour Economics, Elsevier, vol. 23(C), pages 107-121.
  4. Buhai, Sebastian & van der Leij, Marco, 2006. "A Social Network Analysis of Occupational Segregation," Working Papers 06-11, University of Aarhus, Aarhus School of Business, Department of Economics.
  5. Anna Zaharieva, 2012. "Double Matching: Social Contacts in a Labour Market with On-the-Job Search," Working Papers 473, Bielefeld University, Center for Mathematical Economics.

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