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Referral Networks and Inequality
[Statistical theories of discrimination in labor markets]

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  • Manolis Galenianos

Abstract

This is the first article to study the interaction between labour markets and endogenous referral networks in the context of worker heterogeneity. In equilibrium the structure of the referral network is hierarchical, which is different from the usual assumption of homophily but is consistent with the evidence. Hierarchy exacerbates inequality. The welfare effects of the use of referrals are subtle and depend on the nature of heterogeneity. If heterogeneity is due to productivity differences, referrals improve welfare. If workers face the different probability of forming a match despite having the same productivity, as in the case of discrimination, referrals reduce welfare.

Suggested Citation

  • Manolis Galenianos, 2021. "Referral Networks and Inequality [Statistical theories of discrimination in labor markets]," The Economic Journal, Royal Economic Society, vol. 131(633), pages 271-301.
    • Handle: RePEc:oup:econjl:v:131:y:2021:i:633:p:271-301.
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    File URL: http://hdl.handle.net/10.1093/ej/ueaa092
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    Cited by:

    1. Ugo Bolletta & Luca Paolo Merlino, 2022. "Marriage Through Friends," Dynamic Games and Applications, Springer, vol. 12(4), pages 1046-1066, December.
    2. Jiménez-Martínez, Antonio & Melguizo-López, Isabel, 2022. "Making friends: The role of assortative interests and capacity constraints," Journal of Economic Behavior & Organization, Elsevier, vol. 203(C), pages 431-465.
    3. Hong, Jieying & Zhang, Rui, 2021. "Socialization, job search and integration," Economic Modelling, Elsevier, vol. 101(C).

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