Job Search, Social Interactions and Labor Market Performance of Low-Skilled Immigrants

In the last two decades, economists have recognized that immigrants make extensive use of their immigrant networks when deciding to migrate and during their stay in the host country. A way in which immigrants utilize their networks is to find information on potential employers during their job search. It thus seems natural to question what the consequences of using the immigrants' networks as a job search strategy are, and whether the size of the network matters. In this paper we develop an on-the-job search model in which immigrants may look for a job using formal and informal channels (i.e. their networks). In order to account for differences in the quality of job offers, we assume that the distributions of wage offers of the network and the formal channels are different. Moreover, the probability of receiving a wage offer through the informal channels depends in a non-linear fashion on the network size, both while employed and while unemployed. Our model predicts that under certain conditions, an immigrant looking for a job through a large network may hurt his/her labor market outcomes. The model also predicts that an increase in the network size could lead to clustering into the network jobs if some restrictions hold.