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Job Matching, Social Network and Word-of-Mouth Communication

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  • Calvó-Armengol, Antoni

    (Universitat Autònoma de Barcelona)

  • Zenou, Yves

    ()
    (Stockholm University)

Abstract

Workers are embedded within a network of social relationships and can communicate through word-of-mouth. They can find a job either directly or through personal contacts. From this micro scenario, we derive an aggregate matching function that has the standard properties but fails to be homogeneous of degree one because of coordination failures between workers. We show that, when the network size increases, on average, the unemployed workers hear about more vacancies through their social network but, at the same time, it is more likely that multiple vacancies reach the same unemployed worker. Above a certain critical value, this job overcrowding becomes so important that job matches decrease with network size. We then establish existence and uniqueness of the labor market equilibrium and study its properties. In dense enough networks, the equilibrium unemployment rate increases with network size whereas the latter has an ambiguous effect on wages. Finally, we demonstrate that the decentralized market equilibrium is not efficient because of both search and network externalities.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 771.

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Length: 28 pages
Date of creation: May 2003
Date of revision:
Publication status: published in: Journal of Urban Economics, 2005, 57 (3), 500-522
Handle: RePEc:iza:izadps:dp771

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Keywords: personal communication; social network; coordination failures;

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