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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

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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


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


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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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