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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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  8. Matthew O. Jackson & Asher Wolinsky, 1994. "A Strategic Model of Social and Economic Networks," Discussion Papers 1098, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  9. Smith, Tony E & Zenou, Yves, 2001. "A Discrete-Time Stochastic Model of Job Matching," CEPR Discussion Papers 3044, C.E.P.R. Discussion Papers.
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  20. 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.
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