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Double Matching: Social Contacts in a Labour Market with On-the-Job Search

  • Anna Zaharieva

    (Bielefeld University)

This paper develops a labour market matching model with heterogeneous firms, on-thejob search and referrals. Social capital is endogenous, so that better connected workers bargain higher wages for a given level of productivity. This is a positive effect of referrals on reservation wages. At the same time, employees accept job offers from more productive employers and forward other offers to their unemployed social contacts. Therefore, the average productivity of a referred worker is lower than the average productivity in the market. This is a negative selection effect of referrals on wages. In the equilibrium, wage premiums (penalties) associated with referrals are more likely in labour markets with lower (higher) productivity heterogeneity and lower (higher) worker’s bargaining power. Next, the model is extended to allow workers help each other climb a wage ladder. On-the-job search is then intensified and wage inequality is reduced as workers employed in high paid jobs pool their less successful contacts towards the middle range of the productivity distribution.

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File URL: http://www.imw.uni-bielefeld.de/n/upload/paper/705f2172834666788607efbfca35afb3.pdf
File Function: First version, 2012
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Paper provided by Bielefeld University, Center for Mathematical Economics in its series Working Papers with number 473.

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Length: 33 pages
Date of creation: Dec 2012
Date of revision:
Handle: RePEc:bie:wpaper:473
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  1. repec:dgr:uvatin:2006014 is not listed on IDEAS
  2. Manolis Galenianos, 2010. "Hiring through Referrals," 2010 Meeting Papers 516, Society for Economic Dynamics.
  3. Yannis Ioannides & Adriaan Soetevent, 2006. "Wages and Employment in a Random Social Network with Arbitrary Degree Distribution," Discussion Papers Series, Department of Economics, Tufts University 0601, Department of Economics, Tufts University.
  4. Addison, John T. & Portugal, Pedro, 2001. "Job Search Methods and Outcomes," IZA Discussion Papers 349, Institute for the Study of Labor (IZA).
  5. Tumen, Semih, 2013. "Informal versus Formal Search: Which Yields a Better Pay?," MPRA Paper 50446, University Library of Munich, Germany.
  6. Shimer, Robert, 2006. "On-the-job search and strategic bargaining," European Economic Review, Elsevier, vol. 50(4), pages 811-830, May.
  7. Fontaine, François, 2008. "Why are similar workers paid differently? the role of social networks," Journal of Economic Dynamics and Control, Elsevier, vol. 32(12), pages 3960-3977, December.
  8. Pissarides, Christopher A, 1994. "Search Unemployment with On-the-Job Search," Review of Economic Studies, Wiley Blackwell, vol. 61(3), pages 457-75, July.
  9. Jolivet, Gregory & Postel-Vinay, Fabien & Robin, Jean-Marc, 2006. "The empirical content of the job search model: Labor mobility and wage distributions in Europe and the US," European Economic Review, Elsevier, vol. 50(4), pages 877-907, May.
  10. 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.
  11. François Fontaine, 2008. "Do workers really benefit from their social networks?," Recherches économiques de Louvain, De Boeck Université, vol. 74(1), pages 5-31.
  12. 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.
  13. Montgomery, James D, 1991. "Social Networks and Labor-Market Outcomes: Toward an Economic Analysis," American Economic Review, American Economic Association, vol. 81(5), pages 1407-18, December.
  14. repec:dgr:uvatin:20060014 is not listed on IDEAS
  15. Simon, Curtis J & Warner, John T, 1992. "Matchmaker, Matchmaker: The Effect of Old Boy Networks on Job Match Quality, Earnings, and Tenure," Journal of Labor Economics, University of Chicago Press, vol. 10(3), pages 306-30, July.
  16. Eric Delattre & Mareva Sabatier, 2007. "Social Capital and Wages: An Econometric Evaluation of Social Networking's Effects," LABOUR, CEIS, vol. 21(2), pages 209-236, 06.
  17. Mauro Sylos Labini, 2004. "Social Networks and Wages: It's All About Connections!," LEM Papers Series 2004/10, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
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