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Social Contacts and Occupational Choice

  • Javier Suarez
  • Samuel Bentolila
  • Claudio Michelacci

Social contacts help workers to find jobs, but those jobs need not be in the occupations where workers are most productive. Hence social contacts can generate mismatch between a worker's occupational choice and his comparative productive advantage. Thus economies with dense social networks can exhibit apparently low labor force quality and, as a result, low returns to firms' investment and depressed aggregate productivity. We employ US and European data for the 1990's to test the key prediction that social contacts distort workers' occupational choices in a direction that reduces their apparent productivity. We find that the use of social contacts helps find jobs one to two months sooner but leads to individual wage discounts of 5\% to 7\% and produces negative externalities on aggregate productivity

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Paper provided by Society for Economic Dynamics in its series 2004 Meeting Papers with number 593.

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Date of creation: 2004
Date of revision:
Handle: RePEc:red:sed004:593
Contact details of provider: Postal: Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA
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  1. Michele Pellizzari, 2004. "Do Friends and Relatives Really Help in Getting a Good Job?," CEP Discussion Papers dp0623, Centre for Economic Performance, LSE.
  2. Matt Jackson, 2003. "The Effects of Social Networks on Employment and Inequality," Theory workshop papers 658612000000000032, UCLA Department of Economics.
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  5. Kugler, Adriana D., 2003. "Employee referrals and efficiency wages," Labour Economics, Elsevier, vol. 10(5), pages 531-556, October.
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  8. Antoni Calvó-Armengol & Matthew O. Jackson, 2003. "Networks in Labor Markets: Wage and Employment Dynamics and Inequality," Working Papers 55, Barcelona Graduate School of Economics.
  9. Blau, David M & Robins, Philip K, 1990. "Job Search Outcomes for the Employed and Unemployed," Journal of Political Economy, University of Chicago Press, vol. 98(3), pages 637-55, June.
  10. Holzer, Harry J, 1988. "Search Method Use by Unemployed Youth," Journal of Labor Economics, University of Chicago Press, vol. 6(1), pages 1-20, January.
  11. 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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  13. Hosios, Arthur J, 1990. "On the Efficiency of Matching and Related Models of Search and Unemployment," Review of Economic Studies, Wiley Blackwell, vol. 57(2), pages 279-98, April.
  14. repec:tpr:qjecon:v:118:y:2003:i:2:p:549-599 is not listed on IDEAS
  15. George J. Borjas, 1994. "Ethnicity, Neighborhoods, and Human Capital Externalities," NBER Working Papers 4912, National Bureau of Economic Research, Inc.
  16. Montgomery, James D, 1991. "Social Networks and Labor-Market Outcomes: Toward an Economic Analysis," American Economic Review, American Economic Association, vol. 81(5), pages 1407-18, December.
  17. Luigi Guiso & Paola Sapienza & Luigi Zingales, 2000. "The Role of Social Capital in Financial Development," CRSP working papers 511, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
  18. Saloner, Garth, 1985. "Old Boy Networks as Screening Mechanisms," Journal of Labor Economics, University of Chicago Press, vol. 3(3), pages 255-67, July.
  19. Norwood, Janet L, 1988. "The Measurement of Unemployment," American Economic Review, American Economic Association, vol. 78(2), pages 284-88, May.
  20. repec:tpr:qjecon:v:112:y:1997:i:4:p:1251-88 is not listed on IDEAS
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