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Do workers really benefit from their social networks?

  • Francois Fontaine

    (University of Paris 1 - Eurequa - CNRS)

This paper provides a simple matching model in which unemployed workers and employers in large firms can be matched together through social networks or through more "formal" methods of search. We show that networks do not necessarily add new externalities and that some results previously obtained in the literature are questionable. Nevertheless, social networks can, in some case, substitute for labor market and this crowding-out effect may be socially costly. We show that a policy increasing the number of workers embedded in the social networks can increase the unemployment rate and decrease workers welfare. Since it is mostly the firms which benefit from larger social networks, transfers from the firms to the workers are necessary to make larger access to the social networks efficient.

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File URL: http://128.118.178.162/eps/mac/papers/0311/0311002.pdf
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Paper provided by EconWPA in its series Macroeconomics with number 0311002.

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Length: 30 pages
Date of creation: 06 Nov 2003
Date of revision: 07 Jan 2004
Handle: RePEc:wpa:wuwpma:0311002
Note: Type of Document - pdf; prepared on Win2000; pages: 30; figures: Yes (included)
Contact details of provider: Web page: http://128.118.178.162

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  17. 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.
  18. Mortensen, Dale T. & Pissarides, Christopher A., 1999. "Job reallocation, employment fluctuations and unemployment," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 18, pages 1171-1228 Elsevier.
  19. Stole, Lars A & Zwiebel, Jeffrey, 1996. "Organizational Design and Technology Choice under Intrafirm Bargaining," American Economic Review, American Economic Association, vol. 86(1), pages 195-222, March.
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