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Why are similar workers paid differently? The role of social networks

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  • Francois Fontaine

Abstract

We provide a matching model where identical workers are embedded in ex-ante identical social networks. Job arrival rate is endogeneous and wages are bargained. We study the evolution of the networks with time and characterize the equilibrium distribution of unemployment rates across networks. We show that wage dispersion arises endogenously as the consequence of the dynamics of networks, firms' strategies and wage bargaining. We show that networks' dynamics, driven by the correlation between agents' statuses, induces unemployment persistence and wages positively correlated with age. Eventually, we show that a higher level of cooperation in networks or larger networks can surprisingly entail more wage dispersio

Suggested Citation

  • Francois Fontaine, 2004. "Why are similar workers paid differently? The role of social networks," 2004 Meeting Papers 493, Society for Economic Dynamics.
    • Handle: RePEc:red:sed004:493
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    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
    • Z13 - Other Special Topics - - Cultural Economics - - - Economic Sociology; Economic Anthropology; Language; Social and Economic Stratification

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