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Social Networks and Wages: It's All About Connections!

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  • Mauro Sylos Labini

Abstract

Empirical evidence suggests that networks of personal relations are very important in the micro dynamics of labor markets: irrespectively of the country and the occupation considered a high share of jobs are filled by social referrals. In this paper we add theoretical speculation and empirical evidence to this stylized fact shedding light on an apparent puzzle: the effect of informal contacts on wages. We, first, review the literature arguing that economic perspectives on the effect of social networks use on wages can benefit from considering differences in the nature of social ties. Second, we propose a formal model which considers two different informal contacts which we call "family" and "professional". The model predicts that while the use of the former type is likely to have a negative impact on wages, the opposite is true for the latter. Third, we use a relatively unexploited Italian data set to show how different ties have different properties and are likely to be used for different purposes. Finally, we concentrate on the relation between informal contacts and wages, obtaining results which are consistent with our theoretical insights.

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Bibliographic Info

Paper provided by Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy in its series LEM Papers Series with number 2004/10.

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Date of creation: 15 May 2004
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Handle: RePEc:ssa:lemwps:2004/10

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Keywords: Labor Markets; Job Search; Social Networks;

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References

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  1. Kugler, Adriana D., 2002. "Employee Referrals and Efficiency Wages," CEPR Discussion Papers 3682, C.E.P.R. Discussion Papers.
  2. David Autor, 2000. "Wiring the Labor Market," NBER Working Papers 7959, National Bureau of Economic Research, Inc.
  3. 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.
  4. 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.
  5. 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.
  6. Antoni Calvó-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.
  7. Holzer, Harry J, 1988. "Search Method Use by Unemployed Youth," Journal of Labor Economics, University of Chicago Press, vol. 6(1), pages 1-20, January.
  8. Datcher, Linda, 1983. "The Impact of Informal Networks of Quit Behavior," The Review of Economics and Statistics, MIT Press, vol. 65(3), pages 491-95, August.
  9. Michele Pellizzari, 2004. "Do friends and relatives really help in getting a good job?," LSE Research Online Documents on Economics 19980, London School of Economics and Political Science, LSE Library.
  10. Checchi, Daniele & Ichino, Andrea & Rustichini, Aldo, 1999. "More equal but less mobile?: Education financing and intergenerational mobility in Italy and in the US," Journal of Public Economics, Elsevier, vol. 74(3), pages 351-393, December.
  11. Saloner, Garth, 1985. "Old Boy Networks as Screening Mechanisms," Journal of Labor Economics, University of Chicago Press, vol. 3(3), pages 255-67, July.
  12. Yannis M. Ioannides & Linda Datcher Loury, 2002. "Job Information Networks, Neighborhood Effects and Inequality," Discussion Papers Series, Department of Economics, Tufts University 0217, Department of Economics, Tufts University.
  13. Freeman, Richard B., 1998. "War of the models: Which labour market institutions for the 21st century?1," Labour Economics, Elsevier, vol. 5(1), pages 1-24, March.
  14. 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.
  15. Daniele Checchi, 2003. "The Italian educational system: family background and social stratification," Departmental Working Papers 2003-01, Department of Economics, Management and Quantitative Methods at Università degli Studi di Milano.
  16. Burdett, Kenneth & Judd, Kenneth L, 1983. "Equilibrium Price Dispersion," Econometrica, Econometric Society, vol. 51(4), pages 955-69, July.
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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. Zaharieva, Anna, 2013. "Social welfare and wage inequality in search equilibrium with personal contacts," Labour Economics, Elsevier, vol. 23(C), pages 107-121.
  3. Bramoullé, Y. & Goyal, S., 2009. "Favoritism," Cambridge Working Papers in Economics 0942, Faculty of Economics, University of Cambridge.
  4. Ponzo, Michela & Scoppa, Vincenzo, 2010. "The use of informal networks in Italy: Efficiency or favoritism?," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 39(1), pages 89-99, January.
  5. Ruben Durante & Giovanna Labartino & Roberto Perotti, 2011. "Academic Dynasties: Decentralization and Familism in the Italian Academia," NBER Working Papers 17572, National Bureau of Economic Research, Inc.
  6. Zaharieva, Anna, 2013. "Double Matching: Social Contacts in a Labour Market with On-the-Job Search," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79891, Verein für Socialpolitik / German Economic Association.

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