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Do workers really benefit from their social networks?

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  • François Fontaine

    ()
    (EUREQua)

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 labour market and this crowding-out effect may be socially costly. We show that an increase in 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 network efficient.

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File URL: ftp://mse.univ-paris1.fr/pub/mse/cahiers2004/V04085.pdf
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Bibliographic Info

Paper provided by Université Panthéon-Sorbonne (Paris 1) in its series Cahiers de la Maison des Sciences Economiques with number v04085.

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Length: 32 pages
Date of creation: Jun 2004
Date of revision:
Handle: RePEc:mse:wpsorb:v04085

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Keywords: Social networks; economic policy; matching; unemployment.;

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References

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  1. Petrongolo, Barbara & Pissarides, Christopher, 2000. "Looking Into The Black Box: A Survey Of The Matching Function," CEPR Discussion Papers 2409, C.E.P.R. Discussion Papers.
  2. Paul Gregg & Jonathan Wadsworth, . "How effective are state employment agencies? Job centre use and job matching in Britain," NIESR Discussion Papers 69, National Institute of Economic and Social Research.
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  5. Addison, John T. & Portugal, Pedro, 1998. "Job Search Methods and Outcomes," ZEW Discussion Papers 98-41, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
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  8. Calvó-Armengol, Antoni & Zenou, Yves, 2003. "Job Matching, Social Network and Word-of-Mouth Communication," IZA Discussion Papers 771, Institute for the Study of Labor (IZA).
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  10. Albrecht, James & Gautier, Pieter & Vroman, Susan, 2003. "Equilibrium Directed Search with Multiple Applications," IZA Discussion Papers 719, Institute for the Study of Labor (IZA).
  11. Dale T. Mortensen & Christopher A. Pissarides, 1999. "Job Reallocation, Employment Fluctuations and Unemployment," CEP Discussion Papers dp0421, Centre for Economic Performance, LSE.
  12. Javier Suarez & Samuel Bentolila & Claudio Michelacci, 2004. "Social Contacts and Occupational Choice," 2004 Meeting Papers 593, Society for Economic Dynamics.
  13. Pierre Cahuc & Fabien Postel-Vinay & Jean-Marc Robin, 2006. "Wage Bargaining with On-the-Job Search: Theory and Evidence," Econometrica, Econometric Society, vol. 74(2), pages 323-364, 03.
  14. Pierre Cahuc & Fran�Ois Fontaine, 2009. "On the Efficiency of Job Search with Social Networks," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 11(3), pages 411-439, 06.
  15. 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, vol. 10(3), pages 306-30, July.
  16. Matt Jackson, 2003. "The Effects of Social Networks on Employment and Inequality," Theory workshop papers 658612000000000032, UCLA Department of Economics.
  17. Hosios, Arthur J, 1990. "On the Efficiency of Matching and Related Models of Search and Unemployment," Review of Economic Studies, Wiley Blackwell, vol. 57(2), pages 279-98, April.
  18. Samuel Bentolila & Andrea Ichino, 2000. "Unemployment and Consumption: Are Job Losses Less Painful near the Mediterranean?," CESifo Working Paper Series 372, CESifo Group Munich.
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  22. Venkatesh Bala & Sanjeev Goyal, 2000. "A Noncooperative Model of Network Formation," Econometrica, Econometric Society, vol. 68(5), pages 1181-1230, September.
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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, François, 2008. "Why are similar workers paid differently? the role of social networks," Journal of Economic Dynamics and Control, Elsevier, vol. 32(12), pages 3960-3977, December.
  3. Sebastian Buhai & Marco van der Leij, 2006. "A Social Network Analysis of Occupational Segregation," Tinbergen Institute Discussion Papers 06-016/1, Tinbergen Institute, revised 08 Nov 2006.
  4. 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.
  5. Zaharieva, Anna, 2013. "Social welfare and wage inequality in search equilibrium with personal contacts," Labour Economics, Elsevier, vol. 23(C), pages 107-121.

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