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On the Efficiency of Job Search with Social Networks

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  • Cahuc, Pierre
  • Fontaine, François

Abstract

This Paper provides a simple matching model in which unemployed workers and employers can be matched together through social networks and through more efficient, but also more costly, methods. In this framework, decentralized decisions to utilize social networks in the job search process can be inefficient and give rise to multiple equilibria for some parameters' values. More precisely, in a decentralized equilibrium, social networks can be over-utilized with respect to an efficient allocation in some circumstances, and under-utilized in others. Moreover, the existence of different job search methods can give rise to a higher job search intensity than the efficient one. This is in sharp contrast with the standard result, derived in matching models, according to which search intensity is always too low if not efficient. Eventually, in the presence of different job search methods, conditional unemployment benefit hikes can improve welfare when individuals are risk neutral.

Suggested Citation

  • Cahuc, Pierre & Fontaine, François, 2002. "On the Efficiency of Job Search with Social Networks," CEPR Discussion Papers 3511, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:3511
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    More about this item

    Keywords

    Social Networks; Unemployment; Job search;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
    • J68 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Public Policy

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