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Social Networks in Determining Employment and Wages: Patterns, Dynamics, and Inequality

Author

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  • Antoni Calvo-Armengol

    (Universitat Autonoma de Barcelona)

  • Matthew O. Jackson

    (California Institute of Technology)

Abstract

We develop a model where agents obtain information about job opportunities through an explicitly modeled network of social contacts. We show that an improvement in the employment status of either an agent's direct or indirect contacts leads to an increase in the agent's employment probability and expected wages, in the sense of first order stochastic dominance. A similar effect results from an increase in the network contacts of an agent. In terms of dynamics and patterns, we show that employment is positively correlated across time and agents, and the same is true for wages. Moreover, unemployment exhibits persistence in the sense of duration dependence: the probability of obtaining a job decreases in the length of time that an agent has been unemployed. Finally, we examine inequality between two groups. If staying in the labor market is costly (in opportunity costs, education costs, or skills maintenance) and one group starts with a worse employment status or a smaller network, then that group's drop-out rate will be higher and their employment prospects and wages will be persistently below that of the other group.

Suggested Citation

  • Antoni Calvo-Armengol & Matthew O. Jackson, 2002. "Social Networks in Determining Employment and Wages: Patterns, Dynamics, and Inequality," Microeconomics 0211007, EconWPA.
  • Handle: RePEc:wpa:wuwpmi:0211007
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    Citations

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    Cited by:

    1. Laurent Gobillon & Thierry Magnac & Harris Selod, 2011. "The effect of location on finding a job in the Paris region," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 26(7), pages 1079-1112, November.
    2. Antoni Calvó-Armengol & Yves Zenou, 2004. "Social Networks And Crime Decisions: The Role Of Social Structure In Facilitating Delinquent Behavior," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 45(3), pages 939-958, August.
    3. Patrick Bayer & Stephen L. Ross & Giorgio Topa, 2008. "Place of Work and Place of Residence: Informal Hiring Networks and Labor Market Outcomes," Journal of Political Economy, University of Chicago Press, vol. 116(6), pages 1150-1196, December.
    4. Harris Selod & Yves Zenou, 2006. "City Structure, Job Search and Labour Discrimination: Theory and Policy Implications," Economic Journal, Royal Economic Society, vol. 116(514), pages 1057-1087, October.
    5. Mian, Atif & Abid, Qamar & Khwaja, Asim Ijaz, 2011. "Bank Credit And Business Networks," Scholarly Articles 4876870, Harvard Kennedy School of Government.
    6. Gobillon, Laurent & Magnac, Thierry & Selod, Harris, 2007. "The Effect of Location on Finding a Job in the Greater Paris Area," IZA Discussion Papers 2848, Institute for the Study of Labor (IZA).
    7. Amparo Urbano, 2011. "SEA Presidential address: Group connectivity and cooperation," SERIEs: Journal of the Spanish Economic Association, Springer;Spanish Economic Association, vol. 2(2), pages 139-158, June.

    More about this item

    Keywords

    Networks; Labor Markets; Employment; Unemployment; Wages; Wage Inequality; Drop-Out Rates; Duration Dependence;

    JEL classification:

    • A14 - General Economics and Teaching - - General Economics - - - Sociology of Economics
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J70 - Labor and Demographic Economics - - Labor Discrimination - - - General

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