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

  • Fontaine Francois


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 networks with time and characterize the equilibrium distribution of unemployment rates across networks. We emphasize that wage dispersion arises endogenously as the consequence of the dynamics of networks, firms' strategies and wage bargaining. Contrary to a generally accepted idea, social networks do not necessary induce stickiness in unemployment dynamics. Our endogenous matching technology shows that the effects of networks on the dynamics mostly hinge on search externalities and not on the correlation between statuses. Our endogenous framework allow us to quantify these effects.

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Paper provided by EconWPA in its series Labor and Demography with number 0408014.

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Length: 33 pages
Date of creation: 25 Aug 2004
Date of revision: 09 Sep 2004
Handle: RePEc:wpa:wuwpla:0408014
Note: Type of Document - pdf; pages: 33
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