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On the Efficiency of Job Search with Social Networks

29 Pages Posted: 21 Oct 2002  

Pierre Cahuc

National Institute of Statistics and Economic Studies (INSEE) - National School for Statistical and Economic Administration (ENSAE); Université Paris I Panthéon-Sorbonne - Equipe Universitaire de Recherche en Economie Quantitative (EUREQUA); French National Center for Scientific Research (CNRS); Centre for Economic Policy Research (CEPR); IZA Institute of Labor Economics

Francois Fontaine

Paris School of Economics; IZA Institute of Labor Economics

Multiple version iconThere are 2 versions of this paper

Date Written: September 2002

Abstract

This paper provides a simple matching model in which unemployed workers and employers can be matched together through social networks and through more efficient, but also more costly, methods. In this framework, decentralized decisions to utilize social networks in the job search process can be inefficient and give rise to multiple equilibria for some parameters values. More precisely, in a decentralized equilibrium, social networks can be over-utilized, with respect to an efficient allocation, in some circumstances and under-utilized in others. Moreover, the existence of different job search methods can give rise to a higher job search intensity than the efficient one. This is in sharp contrast with the standard result, derived in matching models, according to which search intensity is always too low if not efficient.

Eventually, in the presence of different job search methods, conditional unemployment benefits hikes can improve welfare when individuals are risk neutral.

Keywords: Social Networks, Unemployment, Job Search

JEL Classification: E24, J64, J68

Suggested Citation

Cahuc, Pierre and Fontaine, Francois, On the Efficiency of Job Search with Social Networks (September 2002). IZA Discussion Paper No. 583. Available at SSRN: https://ssrn.com/abstract=340320

Pierre Cahuc (Contact Author)

National Institute of Statistics and Economic Studies (INSEE) - National School for Statistical and Economic Administration (ENSAE) ( email )

92245 Malakoff Cedex
France

Université Paris I Panthéon-Sorbonne - Equipe Universitaire de Recherche en Economie Quantitative (EUREQUA) ( email )

106-112 Boulevard de l'Hopital
Paris Cedex 13, 75647
France
+33 1 4117 3717 (Phone)
+33 1 4117 3724 (Fax)

HOME PAGE: http://eurequa.univ-paris1.fr/membres/cahuc/

French National Center for Scientific Research (CNRS)

106-112 Boulevard de l'Hopital
75647 Paris Cedex 13
France
+33 4 44 07 82 06 (Phone)
+33 4 44 07 82 02 (Fax)

Centre for Economic Policy Research (CEPR)

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Francois Fontaine

Paris School of Economics ( email )

48, boulevard Jourdan
Paris, 75014
France

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

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