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Networks in Labor Markets: Wage and Employment Dynamics and Inequality

Author

Listed:
  • Antoni Calvó-Armengol
  • Matthew O. Jackson

Abstract

We present a model of labor markets that accounts for the social network through which agents hear about jobs. We show that an improvement in the wage or employment status of either an agent's direct or indirect contacts leads to an increase in the agent's employment probability and expected wages, in the sense of first order stochastic dominance. A similar effect results from an increase in the network contacts of an agent. In terms of dynamics and patterns, we show that both wages and employment are positively associated (a strong form of correlation) across time and agents. We also analyze the decisions of agents regarding staying in the labor market or dropping out. If there are costs to staying in the labor market, and we compare two networks of agents that are identical except that one group starts with a worse wage status, then that group's drop-out rate will be higher that the other's and there will be a persistent difference in wages between the groups.

Suggested Citation

  • Antoni Calvó-Armengol & Matthew O. Jackson, 2003. "Networks in Labor Markets: Wage and Employment Dynamics and Inequality," Working Papers 55, Barcelona Graduate School of Economics.
    • Handle: RePEc:bge:wpaper:55
    as

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    References listed on IDEAS

    as
    1. Durlauf, Steven N, 1996. "A Theory of Persistent Income Inequality," Journal of Economic Growth, Springer, vol. 1(1), pages 75-93, March.
    2. Farley, Reynolds, 1990. "Blacks, Hispanics, and White Ethnic Groups: Are Blacks Uniquely Disadvantaged?," American Economic Review, American Economic Association, vol. 80(2), pages 237-241, May.
    3. James J. Heckman, 1998. "Detecting Discrimination," Journal of Economic Perspectives, American Economic Association, vol. 12(2), pages 101-116, Spring.
    4. David Card & Alan B. Krueger, 1992. "School Quality and Black-White Relative Earnings: A Direct Assessment," The Quarterly Journal of Economics, Oxford University Press, vol. 107(1), pages 151-200.
    5. Antoni Calvó-Armengol & Matthew O. Jackson, 2004. "The Effects of Social Networks on Employment and Inequality," American Economic Review, American Economic Association, vol. 94(3), pages 426-454, June.
    6. Loury, Glenn C, 1981. "Intergenerational Transfers and the Distribution of Earnings," Econometrica, Econometric Society, vol. 49(4), pages 843-867, June.
    7. William A. Darity & Patrick L. Mason, 1998. "Evidence on Discrimination in Employment: Codes of Color, Codes of Gender," Journal of Economic Perspectives, American Economic Association, vol. 12(2), pages 63-90, Spring.
    8. Young, H Peyton, 1993. "The Evolution of Conventions," Econometrica, Econometric Society, vol. 61(1), pages 57-84, January.
    9. Smith, James P & Welch, Finis R, 1989. "Black Economic Progress after Myrdal," Journal of Economic Literature, American Economic Association, vol. 27(2), pages 519-564, June.
    10. Yannis M. Ioannides & Linda Datcher Loury, 2004. "Job Information Networks, Neighborhood Effects, and Inequality," Journal of Economic Literature, American Economic Association, vol. 42(4), pages 1056-1093, December.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Networks; labor markets; employment; unemployment; wages; wage inequality; drop-out rates;

    JEL classification:

    • A14 - General Economics and Teaching - - General Economics - - - Sociology of Economics
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J70 - Labor and Demographic Economics - - Labor Discrimination - - - General

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