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The B.E. Journal of Theoretical Economics

Editor-in-Chief: Schipper, Burkhard

Ed. by Fong, Yuk-fai / Peeters, Ronald / Puzzello , Daniela / Rivas, Javier / Wenzelburger, Jan

2 Issues per year


IMPACT FACTOR 2016: 0.229
5-year IMPACT FACTOR: 0.271

CiteScore 2016: 0.30

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1935-1704
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Labor Market and Search through Personal Contacts

Roman Chuhay
Published Online: 2013-06-21 | DOI: https://doi.org/10.1515/bejte-2012-0021

Abstract

In this article, we consider the impact of personal contacts on the labor market outcome. Unlike previous studies, we do not assume any particular network structure or vacancies communication protocol. Instead, we state three general properties of matching functions that allow us to establish the existence and uniqueness of equilibrium and characterize the impact of social ties on the labor market. In particular, we show that a monotonically increasing matching function in socialization level is a necessary and sufficient condition for having monotonically decreasing unemployment and increasing wage and market tightness. However, the same does not apply to vacancy rate. We establish a condition under which a monotonically increasing matching function produces a vacancy rate that first increases in socialization level, but then decreases.

Keywords: labor market; unemployment; matching; search; social network; referrals

JEL Classification Numbers: J63; J64; D83; E24

References

  • Cabrales, A., A. Calvó-Armengol, and Y. Zenou. 2007. “Effort and Synergies in Network Formation,”' mimeo.Google Scholar

  • Cahuc, P., and F. Fontaine. 2009. “On the Efficiency of Job Search with Social Networks.” Journal of Public Economic Theory 11(3):411–39.Web of ScienceCrossrefGoogle Scholar

  • Calvó-Armengol, A. 2004. “Job Contact Networks.”' Journal of Economic Theory 115(1):191–206.CrossrefGoogle Scholar

  • Calvó-Armengol, A., and M.O. Jackson. 2004. “The Effects of Social Networks on Employment and Inequality.” American Economic Review 94(3):426–54.CrossrefGoogle Scholar

  • Calvó-Armengol, A., and Y. Zenou. 2005. “Job Matching, Social Network and Word-of-Mouth Communication.” Journal of Urban Economics 57:500–22.Google Scholar

  • Fontaine, F. 2008. “Why Are Similar Workers Paid Differently? The Role of Social Networks.” Journal of Economic Dynamics and Control 32(12):3960–77.Web of ScienceCrossrefGoogle Scholar

  • Galenianos, M. 2012. “Hiring Through Referrals.” manuscript.Google Scholar

  • Galeotti, A., and L.P. Merlino. 2011. “Endogenous Job Contact Networks.” manuscript, University of Essex.Google Scholar

  • Ioannides, Y.M., and L.D. Loury. 2004. “Job Information Networks, Neighborhood Effects, and Inequality.” Journal of Economic Literature 42(4):1056–93.CrossrefGoogle Scholar

  • Ioannides, Y.M., and A.R. Soetevent. 2006. “Wages and Employment in a Random Social Network with Arbitrary Degree Distribution.” The American Economic Review 96:270–4.Google Scholar

  • Petrongolo, B., and C.A. Pissarides. 2001. “Looking into the Black Box: A Survey of the Matching Function.” Journal of Economic Literature 39(2):390–431.CrossrefGoogle Scholar

  • Pissarides, C.A. 2000. Equilibrium Unemployment Theory, Second ed. Cambridge: MIT Press.Google Scholar

  • Topa, G. 2011. “Labor Markets and Referrals.” In Handbook of Social Economics, edited by Jess Benhabib, Alberto Bisin and Matthew O. Jackson, 1193–1221. Amsterdam: Elsevier Science, forthcoming.Google Scholar

About the article

Published Online: 2013-06-21

Published in Print: 2013-01-01


See, for example, Jackson and Calvó-Armengol (2004), Calvó-Armengol (2004), and Calvó-Armengol and Zenou (2005).

See, for example, Calvó-Armengol (2004), Calvó-Armengol and Zenou (2005), Ioannides and Soetevent (2006), Cahuc and Fontaine (2009), and Galeotti and Merlino (2011).

The article by Calvó-Armengol and Zenou (2005) assumes a regular network (all workers have the same number of contacts), Galeotti and Merlino (2011) employs the network formation mechanism that leads to a Poisson degree distribution, and finally Cahuc and Fontaine (2009) assumes that the network is composed of cliques (components inside which all workers are connected).

Essentially, the network structures in Galenianos (2012) and Calvó-Armengol (2004) are the same, and thus, both studies should produce the same result regarding the effect of average connectivity on the employment. However, the main difference is that in Calvó-Armengol (2004) employed contacts who hear about a vacancy redirect it at random to one of their unemployed neighbors, while in Galenianos (2012) they do it regardless of the employment status of neighbors.


Citation Information: The B.E. Journal of Theoretical Economics, Volume 13, Issue 1, Pages 191–213, ISSN (Online) 1935-1704, ISSN (Print) 2194-6124, DOI: https://doi.org/10.1515/bejte-2012-0021.

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