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The Use of Informal Networks in Italy: Efficiency or Favoritism?

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  • Ponzo, Michela
  • Scoppa, Vincenzo

Abstract

A large body of literature considers the advantages of using informal networks to match workers to jobs. However, family ties may interfere with a genuine process of worker selection, favoring people with connections over more talented workers. We offer a simple model of favoritism to explain these risks and show firms’ trade-off in using informal channels. We then investigate empirically the determinants and consequences of using informal networks in Italy by using the Bank of Italy Survey. We find that informal networks tend to be used by low educated individuals, in small firms, in low productivity jobs and in less developed regions. Finally, we show that informal networks have a negative impact on wages, controlling for individual and firm characteristics.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 17281.

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Date of creation: 2009
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Handle: RePEc:pra:mprapa:17281

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Keywords: Informal Networks; Favoritism; Nepotism; Earnings functions; Survey of Household Income and Wealth (SHIW);

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Cited by:
  1. Hammermann, Andrea & Mohnen, Alwine & Nieken, Petra, 2012. "Whom to Choose as a Team Mate? A Lab Experiment about In-Group Favouritism," IZA Discussion Papers 6286, Institute for the Study of Labor (IZA).
  2. Fiorillo, Damiano & Nappo, Nunzia, 2011. "Job satisfaction in Italy: individual characteristics and social relations," MPRA Paper 31133, University Library of Munich, Germany.
  3. M. Deidda & A. Di Liberto & M. Foddi & G. Sulis, 2012. "Employment Subsidies, Informal Economy and Women’s Transition into Work in a Depressed Area: Evidence from a Matching Approach," Working Paper CRENoS 201216, Centre for North South Economic Research, University of Cagliari and Sassari, Sardinia.
  4. de Blasio, Guido & Nuzzo, Giorgio, 2010. "Individual determinants of social behavior," The Journal of Socio-Economics, Elsevier, vol. 39(4), pages 466-473, August.

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