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Do friends and relatives really help in getting a good job?

  • Michele Pellizzari

Informal contacts are extensively used by both firms and workers to find jobs and fill vacancies. The common wisdom in the economic literature is that jobs created through this channel are of better quality and pay higher wages than jobs created through formal methods. This paper explores the empirical evidence for European countries using the European Community Household Panel (ECHP) and discovers a large cross-country as well as cross-industry variation in the wage differentials between jobs found through informal and formal methods. Across countries and industries wage premiums and wage penalties to finding jobs through personal contacts are equally frequent. This paper argues that such variation can be explained by looking at firms' recruitment strategies. In labour markets where employers invest largely in formal recruitment activities, matches created through this channel are likely to be of average better quality than those created through informal networks. A simple theoretical model is used to show that employers invest more in recruitment for high productivity jobs and for positions that require considerable training. The empirical predictions of the theory are successfully tested using industry-level data on recruitment costs.

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Paper provided by London School of Economics and Political Science, LSE Library in its series LSE Research Online Documents on Economics with number 19980.

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Length: 59 pages
Date of creation: Mar 2004
Date of revision:
Handle: RePEc:ehl:lserod:19980
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  20. Alan Manning, 1999. "Pretty vacant: recruitment in low wage labour markets," LSE Research Online Documents on Economics 20231, London School of Economics and Political Science, LSE Library.
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  22. 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.
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  26. Gautier, Pieter A., 2002. "Non-sequential search, screening externalities and the public good role of recruitment offices," Economic Modelling, Elsevier, vol. 19(2), pages 179-196, March.
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