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Social networks, job search methods and reservation wages: evidence for Germany

  • Marco Caliendo
  • Ricarda Schmidl
  • Arne Uhlendorff

Purpose – This paper aims to analyze the role of social networks on the job search choices of the unemployed. If social networks convey useful information in the job search process, individuals with larger networks should experience a higher productivity of informal search channels. This in turn affects the choice of formal search intensity and the reservation wage. The paper seeks to test these search-theoretic implications of productive social networks empirically. Design/methodology/approach – The authors use the IZA Evaluation Dataset containing detailed information on job search behavior of recently unemployed individuals. Observing a rich array of personality traits and direct measures of the social network, the authors choose an identification approach based on observable characteristics using least squares and binary probit regression analysis. Findings – The findings confirm theoretical expectations. Individuals with larger networks use informal search channels more often and shift from formal to informal search. In addition to that, evidence is found for a positive relationship between network size and reservation wages. Research limitations/implications – The extent to which networks are used during job search most likely also depends on the quality of the network, which cannot be observed in the data. However, as the network significantly changes the observable formal job search effort of individuals, public job search monitoring policies should take these effects into account. Originality/value – The paper complements the previous body of literature on the role of social networks in the labor market that predominantly focuses on labor market outcomes. By highlighting the interaction between networks and job search choices the paper improves the understanding of realized labor market outcomes in the presence of networks.

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Article provided by Emerald Group Publishing in its journal International Journal of Manpower.

Volume (Year): 32 (2011)
Issue (Month): 7 (November)
Pages: 796-824

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Handle: RePEc:eme:ijmpps:v:32:y:2011:i:7:p:796-824
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  1. Weber, Andrea & Mahringer, Helmut, 2002. "Choice and Success of Job Search Methods," Economics Series 125, Institute for Advanced Studies.
  2. 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.
  3. Michele Pellizzari, 2010. "Do Friends and Relatives Really Help in Getting a Good Job?," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 63(3), pages 494-510, April.
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  11. Marco Caliendo & Deborah Cobb-Clark & Arne Uhlendorff, 2010. "Locus of Control and Job Search Strategies," Discussion Papers of DIW Berlin 979, DIW Berlin, German Institute for Economic Research.
  12. Luca P. Merlino Autonoma & Andrea Galeotti, 2009. "Endogenous job contact networks," 2009 Meeting Papers 133, Society for Economic Dynamics.
  13. Calvo-Armengol, Antoni & Jackson, Matthew O., 2007. "Networks in labor markets: Wage and employment dynamics and inequality," Journal of Economic Theory, Elsevier, vol. 132(1), pages 27-46, January.
  14. Blau, David M & Robins, Philip K, 1990. "Job Search Outcomes for the Employed and Unemployed," Journal of Political Economy, University of Chicago Press, vol. 98(3), pages 637-55, June.
  15. Lawrence M. Kahn & Stuart A. Low, 1988. "Systematic and Random Search A Synthesis," Journal of Human Resources, University of Wisconsin Press, vol. 23(1), pages 1-20.
  16. van den Berg, Gerard J & van der Klaauw, Bas, 2001. "Counselling and Monitoring of Unemployed Workers: Theory and Evidence from a Controlled Social Experiment," CEPR Discussion Papers 2986, C.E.P.R. Discussion Papers.
  17. Harry J. Holzer, 1986. "Search Method Use by Unemployed Youth," NBER Working Papers 1859, National Bureau of Economic Research, Inc.
  18. Wahba, Jackline & Zenou, Yves, 2003. "Density, Social Networks and Job Search Methods: Theory and Application to Egypt," CEPR Discussion Papers 3967, C.E.P.R. Discussion Papers.
  19. Patrick Bayer & Stephen L. Ross & Giorgio Topa, 2005. "Place of Work and Place of Residence: Informal Hiring Networks and Labor Market Outcomes," Working Papers 927, Economic Growth Center, Yale University.
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