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Referral networks and the allocation of talent

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  • Pothier, David
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    Abstract

    We study a model of occupational choice where workers must rely on their social contacts to acquire job vacancy information. Contrary to the existing literature, we allow for worker heterogeneity in terms of their idiosyncratic skill-types. In this case, the allocation of talent (the matching of skills to tasks) becomes a welfare-relevant consideration. A worker’s skill-type determines both his relative cost of specialising in different occupations and his productivity on the job. The model shows that relying on word-of-mouth communication for job search generates both positive externalities (due to improved labour market matching) and negative externalities (due to a poor allocation of talent). Which effect dominates depends on the prop- erties of the job search and productivity functions. Taking into account worker heterogeneity shows that the degree of occupational segregation in competitive labour markets is generally not efficient.

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    Bibliographic Info

    Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 39895.

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    Date of creation: 06 Jul 2012
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    Handle: RePEc:pra:mprapa:39895

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    Keywords: Labour Markets; Social Networks;

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    1. Antoni Calvó-Armengol & Matthew O. Jackson, 2003. "Networks in Labor Markets: Wage and Employment Dynamics and Inequality," Working Papers 55, Barcelona Graduate School of Economics.
    2. Samuel Bentolila & Claudio Michelacci & Javier Suarez, 2010. "Social Contacts and Occupational Choice," Economica, London School of Economics and Political Science, vol. 77(305), pages 20-45, 01.
    3. Calvo-Armengol, Antoni, 2004. "Job contact networks," Journal of Economic Theory, Elsevier, vol. 115(1), pages 191-206, March.
    4. Marco J. van der Leij & I. Sebastian Buhai, 2008. "A Social Network Analysis of Occupational Segregation," Working Papers 2008.31, Fondazione Eni Enrico Mattei.
    5. Matt Jackson, 2003. "The Effects of Social Networks on Employment and Inequality," Theory workshop papers 658612000000000032, UCLA Department of Economics.
    6. Kim, Young Chul, 2009. "Lifetime Network Externality and the Dynamics of Group Inequality," MPRA Paper 18767, University Library of Munich, Germany.
    7. Roland Benabou, 1991. "Workings of a City: Location, Education, and Production," NBER Technical Working Papers 0113, National Bureau of Economic Research, Inc.
    8. Kenneth J. Arrow, 1998. "What Has Economics to Say about Racial Discrimination?," Journal of Economic Perspectives, American Economic Association, vol. 12(2), pages 91-100, Spring.
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