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Social network formation and labor market inequality

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  • Horvath, Gergely
  • Zhang, Rui

Abstract

We study how differences in interpersonal skills lead to inequality among workers when social connections are endogenously formed and workers find jobs through their contacts. We show that the equilibrium network structure is very unequal in terms of links and access to jobs. The equilibrium network is not socially optimal because workers impose negative externality on each other by forming more links. The degree of inequality is larger in the equilibrium than what would be socially optimal. In the equilibrium, high-skilled individuals overinvest in networking while low-skilled individuals underinvest, which enlarges the impact of differences in interpersonal skills. The degree of inequality is largest when job availability is moderate.

Suggested Citation

  • Horvath, Gergely & Zhang, Rui, 2018. "Social network formation and labor market inequality," Economics Letters, Elsevier, vol. 166(C), pages 45-49.
    • Handle: RePEc:eee:ecolet:v:166:y:2018:i:c:p:45-49
    DOI: 10.1016/j.econlet.2018.01.026
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    References listed on IDEAS

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    Cited by:

    1. Gergely Horváth & Rui Zhang, 2022. "The impact of social networking on labor market participation," Bulletin of Economic Research, Wiley Blackwell, vol. 74(1), pages 278-290, January.
    2. Merlino, Luca Paolo, 2019. "Informal job search through social networks and vacancy creation," Economics Letters, Elsevier, vol. 178(C), pages 82-85.
    3. Oded Stark & Jakub Bielawski & Fryderyk Falniowski, 2024. "Measuring income inequality in social networks," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 22(2), pages 333-356, June.
    4. V.I. Rodionova & L.A. Shvachkina & V.A. Ivashova, 2018. "Social Correlation of Professional Educational Services and Labor Market as a Vector of Successful Social and Economic Development," European Research Studies Journal, European Research Studies Journal, vol. 0(Special 2), pages 285-293.
    5. Hong, Jieying & Zhang, Rui, 2021. "Socialization, job search and integration," Economic Modelling, Elsevier, vol. 101(C).
    6. Yoshitaka Ogisu, 2026. "Unemployment Fluctuation and Referral Hiring," Discussion Paper Series DP2026-12, Research Institute for Economics & Business Administration, Kobe University.
    7. Swati Sharma, 2021. "Gender and workplace interactions: who is likely to lose?," IEG Working Papers 426, Institute of Economic Growth.
    8. Jiafeng Gu, 2024. "Family social capital and entrepreneurship in rural China: potential mediating mechanisms," Economic Change and Restructuring, Springer, vol. 57(4), pages 1-30, August.
    9. Afridi, Farzana & Dhillon, Amrita, 2022. "Social Networks and the Labour Market," IZA Discussion Papers 15774, IZA Network @ LISER.

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    More about this item

    Keywords

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    JEL classification:

    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General
    • J01 - Labor and Demographic Economics - - General - - - Labor Economics: General
    • D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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