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The use of informal networks in Italy: Efficiency or favoritism?

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  • Ponzo, Michela
  • Scoppa, Vincenzo

Abstract

A large body of literature considers the advantages of using informal networks to match workers to jobs. However, family ties may interfere with a genuine process of worker selection, favoring people with connections over more talented workers. We offer a simple model of favoritism to explain these risks and show firms' trade-off in using informal channels. We then investigate empirically the determinants and consequences of using informal networks in Italy by using the Bank of Italy Survey. We find that informal networks tend to be used by low-educated individuals, in small firms, in low-productivity jobs and in less developed regions. Finally, we show that informal networks have a negative impact on wages, controlling for individual and firm characteristics.

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  • Ponzo, Michela & Scoppa, Vincenzo, 2010. "The use of informal networks in Italy: Efficiency or favoritism?," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 39(1), pages 89-99, January.
  • Handle: RePEc:eee:soceco:v:39:y:2010:i:1:p:89-99
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    Cited by:

    1. Carmen Aina & Cheti Nicoletti, 2014. "The intergenerational transmission of liberal professions: nepotism versus abilities," Discussion Papers 14/14, Department of Economics, University of York.
    2. Emanuela Ghignoni, 2016. "The ‘great escape’ from Italian Universities: Do labour market recruitment channels matter?," QUADERNI DI ECONOMIA DEL LAVORO, FrancoAngeli Editore, vol. 2016(106), pages 49-75.
    3. Baruffaldi, Stefano H. & Di Maio, Giorgio & Landoni, Paolo, 2017. "Determinants of PhD holders’ use of social networking sites: An analysis based on LinkedIn," Research Policy, Elsevier, vol. 46(4), pages 740-750.
    4. Hammermann, Andrea & Mohnen, Alwine & Nieken, Petra, 2012. "Whom to Choose as a Team Mate? A Lab Experiment about In-Group Favouritism," IZA Discussion Papers 6286, Institute for the Study of Labor (IZA).
    5. Horvath Gergely, 2014. "On-the-Job Search and Finding a Good Job Through Social Contacts," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 14(1), pages 1-33, February.
    6. Stupnytska, Yuliia & Zaharieva, Anna, 2015. "Explaining U-shape of the referral hiring pattern in a search model with heterogeneous workers," Journal of Economic Behavior & Organization, Elsevier, vol. 119(C), pages 211-233.
    7. Z. Bilgen Susanli, 2016. "Understanding the NEET in Turkey," Eurasian Journal of Economics and Finance, Eurasian Publications, vol. 4(2), pages 42-57.
    8. Manuela Deidda & Adriana Di Liberto & Marta Foddi & Giovanni Sulis, 2015. "Employment subsidies, informal economy and women’s transition into work in a depressed area: evidence from a matching approach," IZA Journal of Labor Policy, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 4(1), pages 1-25, December.
    9. Emanuela Ghignoni, 2017. "Who do you know or what do you know? Informal recruitment channels, family background and university enrolments," Working Papers 179, University of Rome La Sapienza, Department of Public Economics.
    10. Duran Miguel A. & Morales Antonio J., 2014. "The Rise and Spread of Favoritism Practices," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 14(1), pages 1-18, January.
    11. Damiano Fiorillo & Nunzia Nappo, 2014. "Job satisfaction in Italy: individual characteristics and social relations," International Journal of Social Economics, Emerald Group Publishing, vol. 41(8), pages 683-704, August.
    12. Bartosz Slawecki, 2011. "Anthropology of the peripheral labour market. The role of culture in explaining the process of hiring employees in microenterprises (Antropologia peryferyjnego rynku pracy - rola kultury w wyjasnianiu," Problemy Zarzadzania, University of Warsaw, Faculty of Management, vol. 9(32), pages 129-153.
    13. Horváth, Gergely, 2014. "Occupational mismatch and social networks," Journal of Economic Behavior & Organization, Elsevier, vol. 106(C), pages 442-468.
    14. Aina, Carmen & Nicoletti, Cheti, 2014. "The intergenerational mobility of liberal professions: nepotism versus abilities," ISER Working Paper Series 2014-39, Institute for Social and Economic Research.
    15. de Blasio, Guido & Nuzzo, Giorgio, 2010. "Individual determinants of social behavior," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 39(4), pages 466-473, August.
    16. Stupnytska, Yuliia & Zaharieva, Anna, 2015. "Explaining the U-Shape of the Referral Hiring Pattern in a Search Model with Heterogeneous Workers," Center for Mathematical Economics Working Papers 511, Center for Mathematical Economics, Bielefeld University.

    More about this item

    Keywords

    Informal networks Favoritism Nepotism Earnings functions;

    JEL classification:

    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption
    • M51 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Firm Employment Decisions; Promotions
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity

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