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Double Matching: Social Contacts in a Labour Market with On-the-Job Search

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  • Zaharieva, Anna

Abstract

This paper develops a labour market matching model with heterogeneous firms, on-thejob search and referrals. Social capital is endogenous, so that better connected workers bargain higher wages for a given level of productivity. This is a positive effect of referrals on reservation wages. At the same time, employees accept job offers from more productive employers and forward other offers to their unemployed social contacts. Therefore, the average productivity of a referred worker is lower than the average productivity in the market. This is a negative selection effect of referrals on wages. In the equilibrium, wage premiums (penalties) associated with referrals are more likely in labour markets with lower (higher) productivity heterogeneity and lower (higher) worker s bargaining power. Next, the model is extended to allow workers help each other climb a wage ladder. On-the-job search is then intensified and wage inequality is reduced as workers employed in high paid jobs pool their less successful contacts towards the middle range of the productivity distribution. --

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Paper provided by Verein für Socialpolitik / German Economic Association in its series Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order with number 79891.

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Date of creation: 2013
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Handle: RePEc:zbw:vfsc13:79891

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References

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  1. Yannis M. Ioannides & Adriaan R. Soetevent, 2006. "Wages and Employment in a Random Social Network with Arbitrary Degree Distribution," Tinbergen Institute Discussion Papers 06-014/1, Tinbergen Institute.
  2. Francois Fontaine, 2003. "Do workers really benefit from their social networks?," Macroeconomics 0311002, EconWPA, revised 07 Jan 2004.
  3. 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.
  4. Eric Delattre & Mareva Sabatier, 2007. "Social Capital and Wages: An Econometric Evaluation of Social Networking's Effects," LABOUR, CEIS, vol. 21(2), pages 209-236, 06.
  5. Addison, John T. & Portugal, Pedro, 2001. "Job Search Methods and Outcomes," IZA Discussion Papers 349, Institute for the Study of Labor (IZA).
  6. 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.
  7. 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.
  8. Fontaine Francois, 2004. "Why are similar workers paid differently? The role of social networks," Labor and Demography 0408014, EconWPA, revised 09 Sep 2004.
  9. Christopher A. Pissarides, 1992. "Search Unemployment with on-the-job Search," CEP Discussion Papers dp0074, Centre for Economic Performance, LSE.
  10. Shimer, Robert, 2006. "On-the-job search and strategic bargaining," European Economic Review, Elsevier, vol. 50(4), pages 811-830, May.
  11. Tumen, Semih, 2013. "Informal versus Formal Search: Which Yields a Better Pay?," MPRA Paper 50446, University Library of Munich, Germany.
  12. 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.
  13. Mauro Sylos Labini, 2004. "Social Networks and Wages: It's All About Connections!," LEM Papers Series 2004/10, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
  14. Penn State & Manolis Galenianos, 2008. "Hiring through Referrals," 2008 Meeting Papers 672, Society for Economic Dynamics.
  15. Jolivet, Gregory & Postel-Vinay, Fabien & Robin, Jean-Marc, 2006. "The empirical content of the job search model: Labor mobility and wage distributions in Europe and the US," European Economic Review, Elsevier, vol. 50(4), pages 877-907, May.
  16. repec:dgr:uvatin:2006014 is not listed on IDEAS
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Cited by:
  1. Zaharieva, Anna, 2013. "Social welfare and wage inequality in search equilibrium with personal contacts," Labour Economics, Elsevier, vol. 23(C), pages 107-121.
  2. Tumen, Semih, 2013. "Informal versus Formal Search: Which Yields a Better Pay?," MPRA Paper 50446, University Library of Munich, Germany.

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