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Labour Market Networks, Underclasses, and Inequality

Author

Listed:
  • Lisa Finneran;
  • Morgan Kelly

Abstract

About half of all vacancies are filled through networks of personal contact. We consider the implications of such labour market networks for inequality. Our central result is that referral networks display threshold behaviour. Above a critical density of referals, qualified workers at all levels of the network are recruited with probability one. Below the threshold, workers low in the hierachy are hired with probability zero: an underclass emerges. Although there is no discrimination, workers with the same distribution of ability at different layers of the network have very different average incomes, reflecting differences of social capital in the form of labour market contacts.

Suggested Citation

  • Lisa Finneran; & Morgan Kelly, 1996. "Labour Market Networks, Underclasses, and Inequality," Economics, Finance and Accounting Department Working Paper Series n660996, Department of Economics, Finance and Accounting, National University of Ireland - Maynooth.
  • Handle: RePEc:may:mayecw:n660996
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    File URL: http://repec.maynoothuniversity.ie/mayecw-files/N660996.pdf
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    Cited by:

    1. Brian Krauth, 2000. "Social Interactions, Thresholds, and Unemployment in Neighborhoods," Discussion Papers dp00-12, Department of Economics, Simon Fraser University, revised 28 Mar 2000.

    More about this item

    Keywords

    labour market networks; underclasses; inequality;

    JEL classification:

    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • D62 - Microeconomics - - Welfare Economics - - - Externalities

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