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Social Contacts and Occupational Choice

  • Bentolila, Samuel
  • Michelacci, Claudio
  • Suarez, Javier

Social contacts help workers to find jobs, but those jobs need not be in the occupations where workers are most productive. Hence social contacts can generate mismatch between a worker’s occupational choice and their comparative productive advantage. Thus economies with dense social networks can exhibit apparently low labour force quality and, as a result, low returns to firms’ investment and depressed aggregate productivity. We employ US and European data for the 1990’s to test the key prediction that social contacts distort workers’ occupational choices in a direction that reduces their apparent productivity. We find that the use of social contacts helps find jobs one to two months sooner but leads to individual wage discounts of 5% to 7% and produces negative externalities on aggregate productivity.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 4308.

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Date of creation: Mar 2004
Date of revision:
Handle: RePEc:cpr:ceprdp:4308
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  1. Michele Pellizzari, 2004. "Do friends and relatives really help in getting a good job?," LSE Research Online Documents on Economics 19980, London School of Economics and Political Science, LSE Library.
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  3. Adriana Kugler, 2002. "Employee referrals and efficiency wages," Economics Working Papers 647, Department of Economics and Business, Universitat Pompeu Fabra.
  4. John Cawley & Karen Conneely & James Heckman & Edward Vytlacil, 1996. "Cognitive Ability, Wages, and Meritocracy," NBER Working Papers 5645, National Bureau of Economic Research, Inc.
  5. Luigi Guiso & Paola Sapienza & Luigi Zingales, 2000. "The Role of Social Capital in Financial Development," CRSP working papers 511, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
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  10. Marmaros, David & Sacerdote, Bruce, 2002. "Peer and social networks in job search," European Economic Review, Elsevier, vol. 46(4-5), pages 870-879, May.
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  12. Luigi Pistaferri, 1999. "Informal Networks in the Italian Labor Market," Giornale degli Economisti, GDE (Giornale degli Economisti e Annali di Economia), Bocconi University, vol. 58(3-4), pages 355-375, December.
  13. 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.
  14. Calvo-Armengol, Antoni & Jackson, Matthew O., 2007. "Networks in labor markets: Wage and employment dynamics and inequality," Journal of Economic Theory, Elsevier, vol. 132(1), pages 27-46, January.
  15. repec:oup:restud:v:57:y:1990:i:2:p:279-98 is not listed on IDEAS
  16. George J. Borjas, 1994. "Ethnicity, Neighborhoods, and Human Capital Externalities," NBER Working Papers 4912, National Bureau of Economic Research, Inc.
  17. repec:oup:qjecon:v:111:y:1996:i:3:p:779-804 is not listed on IDEAS
  18. repec:oup:qjecon:v:118:y:2003:i:2:p:549-599 is not listed on IDEAS
  19. Blau, David M & Robins, Philip K, 1990. "Job Search Outcomes for the Employed and Unemployed," Journal of Political Economy, University of Chicago Press, vol. 98(3), pages 637-55, June.
  20. Norwood, Janet L, 1988. "The Measurement of Unemployment," American Economic Review, American Economic Association, vol. 78(2), pages 284-88, May.
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