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Social Networks in Determining Employment and Wages: Patterns, Dynamics, and Inequality

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Author Info
Antoni Calvo-Armengol (Universitat Autonoma de Barcelona)
Matthew O. Jackson (California Institute of Technology)

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Abstract

We develop a model where agents obtain information about job opportunities through an explicitly modeled network of social contacts. We show that an improvement in the employment status of either an agent's direct or indirect contacts leads to an increase in the agent's employment probability and expected wages, in the sense of first order stochastic dominance. A similar effect results from an increase in the network contacts of an agent. In terms of dynamics and patterns, we show that employment is positively correlated across time and agents, and the same is true for wages. Moreover, unemployment exhibits persistence in the sense of duration dependence: the probability of obtaining a job decreases in the length of time that an agent has been unemployed. Finally, we examine inequality between two groups. If staying in the labor market is costly (in opportunity costs, education costs, or skills maintenance) and one group starts with a worse employment status or a smaller network, then that group's drop-out rate will be higher and their employment prospects and wages will be persistently below that of the other group.

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Paper provided by EconWPA in its series Microeconomics with number 0211007.

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Date of creation: 04 Nov 2002
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Handle: RePEc:wpa:wuwpmi:0211007

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Related research
Keywords: Networks; Labor Markets; Employment; Unemployment; Wages; Wage Inequality; Drop-Out Rates; Duration Dependence;

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Find related papers by JEL classification:
A14 - General Economics and Teaching - - General Economics - - - Sociology of Economics
J64 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - Unemployment: Models, Duration, Incidence, and Job Search
J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
J70 - Labor and Demographic Economics - - Labor Discrimination - - - General

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Full references

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. Patrick Bayer & Stephen L. Ross & Giorgio Topa, 2004. "Place of Work and Place of Residence: Informal Hiring Networks and Labor Market Outcomes," Working papers 2004-07, University of Connecticut, Department of Economics, revised Oct 2005. [Downloadable!]
    Other versions:
  2. Gobillon, Laurent & Magnac, Thierry & Selod, Harris, 2007. "The Effect of Location on Finding a Job in the Paris Region," IDEI Working Papers 433, Institut d'Économie Industrielle (IDEI), Toulouse, revised Mar 2009. [Downloadable!]
    Other versions:
  3. Calvó-Armengol, Antoni & Zenou, Yves, 2003. "Social Networks and Crime Decisions: The Role of Social Structure in Facilitating Delinquent Behaviour," CEPR Discussion Papers 3966, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  4. Matthew O. Jackson, 2003. "A survey of models of network formation: Stability and efficiency," Working Papers 1161, California Institute of Technology, Division of the Humanities and Social Sciences. [Downloadable!]
    Other versions:
  5. Laurent Gobillon & Thierry Magnac & Harris Selod, 2007. "The Effect of Location on Finding a Job in the Greater Paris Area," IZA Discussion Papers 2848, Institute for the Study of Labor (IZA). [Downloadable!]
  6. Selod, Harris & Zenou, Yves, 2005. "City Structure, Job Search and Labour Discrimination. Theory and Policy Implications," CEPR Discussion Papers 5009, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  7. Navarro,Noemi, 2003. "Fair Allocation in Evolving Networks," Research Memoranda 026, Maastricht : METEOR, Maastricht Research School of Economics of Technology and Organization. [Downloadable!]
  8. Gilles, R.P. & Chakrabarti, S. & Sarangi, S. & Badasyan, N., 2004. "The role of middlemen in efficient and strongly pairwise stable networks," Discussion Paper 64, Tilburg University, Center for Economic Research. [Downloadable!]
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