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Do workers really benefit from their social networks?

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Author Info
Francois Fontaine (University of Paris 1 - Eurequa - CNRS)

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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 labor market and this crowding-out effect may be socially costly. We show that a policy increasing 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 networks efficient.

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File URL: http://129.3.20.41/eps/mac/papers/0311/0311002.pdf
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Publisher Info
Paper provided by EconWPA in its series Macroeconomics with number 0311002.

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Length: 30 pages
Date of creation: 06 Nov 2003
Date of revision: 07 Jan 2004
Handle: RePEc:wpa:wuwpma:0311002

Note: Type of Document - pdf; prepared on Win2000; pages: 30; figures: Yes (included)
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Web page: http://129.3.20.41

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Related research
Keywords: social networks; labor market; matching; unemployment; economic policy;

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Find related papers by JEL classification:
E24 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution
J64 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - Unemployment: Models, Duration, Incidence, and Job Search
J68 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - Public Policy

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. 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). [Downloadable!]
    Other versions:
  2. 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. [Downloadable!] (restricted)
    Other versions:
  3. Bentolila, S. & Ichino, A., 2000. "Unemployment and Consumption: are Job Losses Less Painful Near the Mediterranean?," Papers 0010, Centro de Estudios Monetarios Y Financieros-.
    Other versions:
  4. Venkatesh Bala & Sanjeev Goyal, 2000. "A Noncooperative Model of Network Formation," Econometrica, Econometric Society, vol. 68(5), pages 1181-1230, September.
  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. [Downloadable!] (restricted)
  6. Harry J. Holzer, 1987. "Hiring Procedures in the Firm: Their Economic Determinants and Outcomes," NBER Working Papers 2185, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  7. Cahuc, Pierre & Fontaine, François, 2002. "On the Efficiency of Job Search with Social Networks," IZA Discussion Papers 583, Institute for the Study of Labor (IZA). [Downloadable!]
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  8. 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. [Downloadable!]
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  9. 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)
  10. Gregg, Paul & Wadsworth, Jonathan, 1996. "How Effective Are State Employment Agencies? Jobcentre Use and Job Matching in Britain," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 58(3), pages 443-67, August.
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  11. Scott A. Boorman, 1975. "A Combinatorial Optimization Model for Transmission of Job Information through Contact Networks," Bell Journal of Economics, The RAND Corporation, vol. 6(1), pages 216-249, Spring. [Downloadable!] (restricted)
  12. Adriana Kugler, 2002. "Employee Referrals and Efficiency Wages," Economics Working Papers 647, Department of Economics and Business, Universitat Pompeu Fabra. [Downloadable!]
  13. 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)
  14. Javier Suarez & Samuel Bentolila & Claudio Michelacci, 2004. "Social Contacts and Occupational Choice," 2004 Meeting Papers 593, Society for Economic Dynamics. [Downloadable!]
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  15. Kugler, Adriana D., 2002. "Employee Referrals and Efficiency Wages," IZA Discussion Papers 633, Institute for the Study of Labor (IZA). [Downloadable!]
  16. John T. Addison & Pedro Portugal, 2002. "Job search methods and outcomes," Oxford Economic Papers, Oxford University Press, vol. 54(3), pages 505-533, July.
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  17. Cahuc, Pierre & Postel-Vinay, Fabien & Robin, Jean-Marc, 2003. "Wage Bargaining with On-The-Job Search: Theory and Evidence," CEPR Discussion Papers 4154, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  18. James Albrecht & Pieter A. Gautier & Susan Vroman, 2006. "Equilibrium Directed Search with Multiple Applications," Review of Economic Studies, Blackwell Publishing, vol. 73(4), pages 869-891, October. [Downloadable!] (restricted)
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  19. Kugler, Adriana D., 2002. "Employee Referrals and Efficiency Wages," CEPR Discussion Papers 3682, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  20. Brown, Martin & Falk, Armin & Fehr, Ernst, 2003. "Relational Contracts and the Nature of Market Interactions," IZA Discussion Papers 897, Institute for the Study of Labor (IZA). [Downloadable!]
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  21. Topa, Giorgio, 1997. "Social Interactions, Local Spillovers and Unemployment," Working Papers 97-17, C.V. Starr Center for Applied Economics, New York University. [Downloadable!]
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  22. Barbara Petrongolo & Christopher A. Pissarides, 2001. "Looking into the Black Box: A Survey of the Matching Function," Journal of Economic Literature, American Economic Association, vol. 39(2), pages 390-431, June. [Downloadable!] (restricted)
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  23. Kugler, Adriana D., 2003. "Employee referrals and efficiency wages," Labour Economics, Elsevier, vol. 10(5), pages 531-556, October. [Downloadable!] (restricted)
  24. Stole, Lars A & Zwiebel, Jeffrey, 1996. "Intra-firm Bargaining under Non-binding Contracts," Review of Economic Studies, Blackwell Publishing, vol. 63(3), pages 375-410, July. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. François Fontaine, 2005. "Why Are Similar Workers Paid Differently? The Role of Social Networks," IZA Discussion Papers 1786, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  2. Buhai, Sebastian & van der Leij, Marco, 2006. "A Social Network Analysis of Occupational Segregation," Working Papers 06-11, University of Aarhus, Aarhus School of Business, Department of Economics. [Downloadable!]
    Other versions:
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This page was last updated on 2009-11-3.

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