Wages and Employment in a Random Social Network with Arbitrary Degree Distribution
This discussion paper resulted in an article in the 'American Economic Review' (2006). Volume 96, issue 2, pages 270-274. Empirical studies of labor markets show that social contacts are an important source of job-related information [Ioannides and Loury (2004)]. At the same time, wage differences among workers may be explained only in part by differences in individual background characteristics. Such findings motivate our model in which differences in "social connectedness" among otherwise identical workers result in wage inequality and differences in unemployment rates. The paper is related to theoretical contributions by Calvo- Armengol and Jackson (2004) and Calvo-Armengol and Zenou (2005) and builds on the Pissarides (2000) model. Workers may hear about job openings directly from employers or through their social contacts. We go further by introducing heterogeneity in the number of contacts each worker has with others, i.e. in the workers' degree. We utilize results from the technical literature on random graphs with arbitrary degree distributions [Newman, (2003a)] to account for a consequence of workers' receiving information about job openings from their social contacts: they compete with their social contacts' other contacts. For social networks with arbitrary degree distributions we show that people who are better connected receive a higher wage on average and face a lower unemployment rate. Numerical computations for the specific case in which connections follow a Poisson distribution show that variability in connections can result in substantial variation in the above labor market outcomes.
(This abstract was borrowed from another version of this item.)
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 96 (2006)
Issue (Month): 2 (May)
|Contact details of provider:|| Web page: https://www.aeaweb.org/aer/|
More information through EDIRC
|Order Information:||Web: https://www.aeaweb.org/subscribe.html|
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.:
- Calvó-Armengol, Antoni & Zenou, Yves, 2001.
"Job Matching, Social Network and Word-of-Mouth Communication,"
695, Stockholm University, Institute for International Economic Studies.
- Calvo-Armengol, Antoni & Zenou, Yves, 2005. "Job matching, social network and word-of-mouth communication," Journal of Urban Economics, Elsevier, vol. 57(3), pages 500-522, May.
- 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).
- Calvó-Armengol, Antoni & Zenou, Yves, 2001. "Job Matching, Social Network and Word-of-Mouth Communication," CEPR Discussion Papers 2797, C.E.P.R. Discussion Papers.
- Kenneth J. Arrow & Ron Borzekowski, 2004. "Limited network connections and the distribution of wages," Finance and Economics Discussion Series 2004-41, Board of Governors of the Federal Reserve System (U.S.).
- Mortensen, Dale T. & Vishwanath, Tara, 1994.
"Personal contacts and earnings : It is who you know!,"
Elsevier, vol. 1(2), pages 187-201, March.
- Mortensen, D. T. & Vishwanath, T., 1995. "Personal contacts and earnings: It is who you know!," Labour Economics, Elsevier, vol. 2(1), pages 103-104, March.
- Bentolila, Samuel & Michelacci, Claudio & Suarez, Javier, 2004.
"Social Contacts and Occupational Choice,"
CEPR Discussion Papers
4308, C.E.P.R. Discussion Papers.
- Katz, Lawrence F. & Autor, David H., 1999. "Changes in the wage structure and earnings inequality," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 26, pages 1463-1555 Elsevier.
- 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.
- Yannis M. Ioannides & Linda Datcher Loury, 2004. "Job Information Networks, Neighborhood Effects, and Inequality," Journal of Economic Literature, American Economic Association, vol. 42(4), pages 1056-1093, December.
- 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.
- Fontaine, Francois, 2005.
"Why Are Similar Workers Paid Differently? The Role of Social Networks,"
IZA Discussion Papers
1786, Institute for the Study of Labor (IZA).
- Fontaine, François, 2008. "Why are similar workers paid differently? the role of social networks," Journal of Economic Dynamics and Control, Elsevier, vol. 32(12), pages 3960-3977, December.
- Fontaine Francois, 2004. "Why are similar workers paid differently? The role of social networks," Labor and Demography 0408014, EconWPA, revised 09 Sep 2004.
- Francois Fontaine, 2004. "Why are similar workers paid differently? The role of social networks," 2004 Meeting Papers 493, Society for Economic Dynamics.
- Matt Jackson, 2003.
"The Effects of Social Networks on Employment and Inequality,"
Theory workshop papers
658612000000000032, UCLA Department of Economics.
- 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.
When requesting a correction, please mention this item's handle: RePEc:aea:aecrev:v:96:y:2006:i:2:p:270-274. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Jane Voros)or (Michael P. Albert)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.