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Social Networks, Job Search Methods and Reservation Wages: Evidence for Germany

  • Marco Caliendo
  • Ricarda Schmidl
  • Arne Uhlendorff

In this paper we analyze the relationship between social networks and the job search behavior of unemployed individuals. It is believed that networks convey useful information in the job search process such that individuals with larger networks should experience a higher productivity of informal search. Hence, job search theory suggests that individuals with larger networks use informal search channels more often and substitute from formal to informal search. Due to the increase in search productivity, it is also likely that individuals set higher reservation wages. We analyze these relations using a novel data set of unemployed individuals in Germany containing extensive information on job search behavior and direct measures for the social network of individuals. Our findings confirm theoretical expectations. Individuals with larger networks use informal search channels more often and shift from formal to informal search. We find that informal search is mainly considered a substitute for passive, less cost intensive search channels. In addition to that, we find evidence for a positive relationship between the network size and reservation wages.

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File URL: http://www.diw.de/documents/publikationen/73/diw_01.c.361048.de/dp1055.pdf
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Paper provided by DIW Berlin, German Institute for Economic Research in its series Discussion Papers of DIW Berlin with number 1055.

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Length: 27 p.
Date of creation: 2010
Date of revision:
Handle: RePEc:diw:diwwpp:dp1055
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  1. Wahba, Jackline & Zenou, Yves, 2005. "Density, social networks and job search methods: Theory and application to Egypt," Journal of Development Economics, Elsevier, vol. 78(2), pages 443-473, December.
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  11. Weber, Andrea & Mahringer, Helmut, 2002. "Choice and Success of Job Search Methods," Economics Series 125, Institute for Advanced Studies.
  12. Bramoullé, Yann & Saint-Paul, Gilles, 2004. "Social Networks and Labor Market Transitions," IDEI Working Papers 300, Institut d'Économie Industrielle (IDEI), Toulouse.
  13. Galeotti, Andrea & Merlino, Luca Paolo, 2010. "Endogenous job contact networks," ISER Working Paper Series 2010-14, Institute for Social and Economic Research.
  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. Mortensen, D. T. & Vishwanath, T., 1995. "Personal contacts and earnings: It is who you know!," Labour Economics, Elsevier, vol. 2(1), pages 103-104, March.
  16. Cappellari, Lorenzo & Tatsiramos, Konstantinos, 2011. "Friends’ networks and job finding rates," ISER Working Paper Series 2011-21, Institute for Social and Economic Research.
  17. Koning, Pierre & Berg, Gerard J. van den & Ridder, Geert, 1997. "A structural analysis of job search methods and subsequent wages," Serie Research Memoranda 0036, VU University Amsterdam, Faculty of Economics, Business Administration and Econometrics.
  18. Lawrence M. Kahn & Stuart A. Low, 1988. "Systematic and Random Search A Synthesis," Journal of Human Resources, University of Wisconsin Press, vol. 23(1), pages 1-20.
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