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Job matching, social network and word-of-mouth communication

  • Calvo-Armengol, Antoni
  • Zenou, Yves

In our model, workers are embedded within a network of social relationships and can communicate through word-of-mouth. They can find a job either through formal agencies or through informal networks of contacts (word-of-mouth communication). From this micro scenario, we derive an aggregate matching function that has the standard properties but fails to be homogenous of degree one. The latter is due to negative externalities generated by indirect acquaintances (contacts of contacts) that slow down word-of-mouth information transmission, especially in dense networks. We then show that there exists a unique labour market equilibrium and that, because of these negative externalities, the equilibrium unemployment rate increases with the network size in dense networks.

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Article provided by Elsevier in its journal Journal of Urban Economics.

Volume (Year): 57 (2005)
Issue (Month): 3 (May)
Pages: 500-522

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Handle: RePEc:eee:juecon:v:57:y:2005:i:3:p:500-522
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/622905

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  1. 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.
  2. Christopher A. Pissarides, 2000. "Equilibrium Unemployment Theory, 2nd Edition," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262161877, June.
  3. Anthony E. Smith & Yves Zenou, 2003. "A Discrete-Time Stochastic Model of Job Matching," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 6(1), pages 54-79, January.
  4. Antoni Calvó-Armengol & Yves Zenou, 2003. "Social Networks and Crime Decisions: The Role of Social Structure in Facilitating Delinquent Behavior," Working Papers 52, Barcelona Graduate School of Economics.
  5. Coles, Melvyn G & Smith, Eric, 1996. "Cross-Section Estimation of the Matching Function: Evidence from England and Wales," Economica, London School of Economics and Political Science, vol. 63(252), pages 589-97, November.
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  19. Mortensen, Dale T. & Pissarides, Christopher A., 1999. "New developments in models of search in the labor market," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 39, pages 2567-2627 Elsevier.
  20. Finneran, Lisa & Kelly, Morgan, 2003. "Social networks and inequality," Journal of Urban Economics, Elsevier, vol. 53(2), pages 282-299, March.
  21. Kenneth Burdett & Shouyong Shi & Randall Wright, 2001. "Pricing and Matching with Frictions," Journal of Political Economy, University of Chicago Press, vol. 109(5), pages 1060-1085, October.
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