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Job Matching, Social Network and Word-of-Mouth Communication

  • Calvó-Armengol, Antoni
  • Zenou, Yves

In our model, workers are embedded within a network of social relationships and can communicate through word-of-mouth. They can find a job either through formal agencies or through informal networks of contacts (word-of-mouth communication). From this micro scenario, we derive an aggregate matching function that has the standard properties but fails to be homogenous of degree one. The latter is due to negative externalities generated by indirect acquaintances (contacts of contacts) that slow down word-of-mouth information transmission, especially in dense networks. We then show that there exists a unique labour market equilibrium and that, because of these negative externalities, the equilibrium unemployment rate increases with the network size in dense networks.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 2797.

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Date of creation: May 2001
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Handle: RePEc:cpr:ceprdp:2797
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  1. Petrongolo, Barbara & Pissarides, Christopher, 2000. "Looking Into The Black Box: A Survey Of The Matching Function," CEPR Discussion Papers 2409, C.E.P.R. Discussion Papers.
  2. Calvó-Armengol, Antoni & Zenou, Yves, 2003. "Social Networks and Crime Decisions: The Role of Social Structure in Facilitating Delinquent Behavior," Working Paper Series 601, Research Institute of Industrial Economics.
  3. A. Banerjee & Drew Fudenberg, 2010. "Word-of-Mouth Communication and Social Learning," Levine's Working Paper Archive 425, David K. Levine.
  4. Coles, Melvyn G & Smith, Eric, 1996. "Cross-Section Estimation of the Matching Function: Evidence from England and Wales," Economica, London School of Economics and Political Science, vol. 63(252), pages 589-97, November.
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  9. Anthony E. Smith & Yves Zenou, 2003. "A Discrete-Time Stochastic Model of Job Matching," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 6(1), pages 54-79, January.
  10. 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.
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  12. Blanchard, Olivier Jean & Diamond, Peter A, 1994. "Ranking, Unemployment Duration, and Wages," Review of Economic Studies, Wiley Blackwell, vol. 61(3), pages 417-34, July.
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  14. Robert E. Hall, 1978. "A Theory of the Natural Unemployment Rate and the Duration of Employment," NBER Working Papers 0251, National Bureau of Economic Research, Inc.
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  18. Kenneth Burdett & Shouyong Shi & Randall Wright, 2001. "Pricing and Matching with Frictions," Journal of Political Economy, University of Chicago Press, vol. 109(5), pages 1060-1085, October.
  19. Kenneth Burdett & Shouyong Shi & Randall Wright, 1998. "Pricing with frictions," Working Papers 98-9, Federal Reserve Bank of Philadelphia.
  20. Bala, V. & Goyal, S., 1995. "Learning from Neighbors," Econometric Institute Research Papers EI 9549-/A, Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute.
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  22. Peters, Michael, 1991. "Ex Ante Price Offers in Matching Games Non-steady States," Econometrica, Econometric Society, vol. 59(5), pages 1425-54, September.
  23. Ricardo Lagos, 2000. "An Alternative Approach to Search Frictions," Journal of Political Economy, University of Chicago Press, vol. 108(5), pages 851-873, October.
  24. Holzer, Harry J, 1988. "Search Method Use by Unemployed Youth," Journal of Labor Economics, University of Chicago Press, vol. 6(1), pages 1-20, January.
  25. Pissarides, C A, 1979. "Job Matchings with State Employment Agencies and Random Search," Economic Journal, Royal Economic Society, vol. 89(356), pages 818-33, December.
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