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Social Contacts and Occupational Choice

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Author Info
Javier Suarez
Samuel Bentolila
Claudio Michelacci

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Abstract

Social contacts help workers to find jobs, but those jobs need not be in the occupations where workers are most productive. Hence social contacts can generate mismatch between a worker's occupational choice and his comparative productive advantage. Thus economies with dense social networks can exhibit apparently low labor force quality and, as a result, low returns to firms' investment and depressed aggregate productivity. We employ US and European data for the 1990's to test the key prediction that social contacts distort workers' occupational choices in a direction that reduces their apparent productivity. We find that the use of social contacts helps find jobs one to two months sooner but leads to individual wage discounts of 5\% to 7\% and produces negative externalities on aggregate productivity

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Paper provided by Society for Economic Dynamics in its series 2004 Meeting Papers with number 593.

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Date of creation: 2004
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Handle: RePEc:red:sed004:593

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Keywords: Search Labour markets social Mobility

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Find related papers by JEL classification:
J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity

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  1. George J. Borjas, 1994. "Ethnicity, Neighborhoods, and Human Capital Externalities," NBER Working Papers 4912, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  2. Luigi Pistaferri, 1999. "Informal Networks in the Italian Labor Market," Giornale degli Economisti, GDE (Giornale degli Economisti e Annali di Economia), Bocconi University, vol. 58(3-4), pages 355-375, December.
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    Other versions:
  4. Calvo-Armengol, Antoni & Jackson, Matthew O., 2007. "Networks in labor markets: Wage and employment dynamics and inequality," Journal of Economic Theory, Elsevier, vol. 132(1), pages 27-46, January. [Downloadable!] (restricted)
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  8. Michele Pellizzari, 2004. "Do Friends and Relatives Really Help in Getting a Good Job?," CEP Discussion Papers dp0623, Centre for Economic Performance, LSE. [Downloadable!]
  9. Mortensen, Dale T. & Vishwanath, Tara, 1994. "Personal contacts and earnings : It is who you know!," Labour Economics, Elsevier, vol. 1(2), pages 187-201, March. [Downloadable!] (restricted)
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  10. Montgomery, James D, 1991. "Social Networks and Labor-Market Outcomes: Toward an Economic Analysis," American Economic Review, American Economic Association, vol. 81(5), pages 1407-18, December.
  11. Antoni Calvo-Armengol & Matthew O. Jackson, 2004. "The Effects of Social Networks on Employment and Inequality," American Economic Review, American Economic Association, vol. 94(3), pages 426-454, June. [Downloadable!] (restricted)
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  12. Marmaros, David & Sacerdote, Bruce, 2002. "Peer and social networks in job search," European Economic Review, Elsevier, vol. 46(4-5), pages 870-879, May. [Downloadable!] (restricted)
  13. Knack, Stephen & Keefer, Philip, 1997. "Does Social Capital Have an Economic Payoff? A Cross-Country Investigation," The Quarterly Journal of Economics, MIT Press, vol. 112(4), pages 1251-88, November.
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  15. Hosios, Arthur J, 1990. "On the Efficiency of Matching and Related Models of Search and Unemployment," Review of Economic Studies, Blackwell Publishing, vol. 57(2), pages 279-98, April. [Downloadable!] (restricted)
  16. Saloner, Garth, 1985. "Old Boy Networks as Screening Mechanisms," Journal of Labor Economics, University of Chicago Press, vol. 3(3), pages 255-67, July. [Downloadable!] (restricted)
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