The Geography of Job Search, Social Networks and Match Quality

We study a relationship between the job search strategies of workers and occupational mismatch, and investigate the role of worker mobility. Using data from the German Socio-economic Panel, we show that workers finding jobs through social contacts experience shorter moving distances compared to workers finding jobs formally. However, shorter moving distances are associated with higher occupational mismatch. Building on this geography-based mechanism, we develop a theoretical search and matching model where individuals are uniformly distributed on a unit distance between two cities and seek a job in either city by applying formally or using help of their network contacts. Jobs have heterogeneous match qualities and there is a moving cost. Beyond explaining the evidence, the model predicts that network hiring leads to a stronger concentration of workers in the cities and contributes to the regional employment segregation. Moreover, it raises inequality by widening the gap in life-time incomes across locations.