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Informal Networks in the Italian Labor Market

Author

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  • Luigi Pistaferri

    () (Department of Economics, Stanford University)

Abstract

In this paper I focus on the effect of informal networks on individuals’ job search and earnings. In the empirical analysis, conducted on data drawn from the 1991 and 1993 Bank of Italy Survey of Household Income and Wealth, I show that while seeking work through informal networks (referrals by friends, relatives, or acquaintances to potential employers) increases the probability of receiving job offers, it is also associated with lower earnings. In a regression of annual earnings on human capital variables and a dummy for whether the worker was hired via informal networks, the latter displays a negative and statistically significant coefficient. I consider two alternative explanations: unobserved low skills/ability and firms’ attributes. I find that while controlling for the latter halves the magnitude of the effect, it does not remove it entirely.

Suggested Citation

  • Luigi Pistaferri, 1999. "Informal Networks in the Italian Labor Market," Giornale degli Economisti, GDE (Giornale degli Economisti e Annali di Economia), Bocconi University, vol. 58(3-4), pages 355-375, December.
  • Handle: RePEc:gde:journl:gde_v58_n3-4_355-375
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    More about this item

    Keywords

    informal networks; earnings function;

    JEL classification:

    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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