Quantifying the Effects of Job Matching Through Social Networks

Journal of Applied Economics, Vol. 14, No. 1, pp. 35-59, May 2011

Posted: 15 Jun 2011  

Adalbert Mayer

Texas A&M University - Department of Economics

Date Written: May 1, 2011

Abstract

The recent literature explains the theoretical implications of the matching of workers to jobs through social networks. These insights are obtained for extremely simplified economies or rely on unrealistically simple social networks. Therefore, it is difficult to obtain a sense for the quantitative importance of effects generated by real life social networks. In this paper, I augment a labor market matching model to allow for information transmission through social networks. I illustrate the effects of social networks and I use simulations to quantify the predictions of the model for complex and realistic social networks. Information transmission through social contacts reduces the steady state unemployment rate from a hypothetical 6.5% to 5%. Social referrals can explain one fifth of the observed duration dependence of unemployment. They cannot explain much of the variation in wages of otherwise homogeneous workers and do not substantially influence aggregate outcomes over the business cycle.

Keywords: job search, matching, social networks, information transmission

JEL Classification: J64, J31, E24

Suggested Citation

Mayer, Adalbert, Quantifying the Effects of Job Matching Through Social Networks (May 1, 2011). Journal of Applied Economics, Vol. 14, No. 1, pp. 35-59, May 2011 . Available at SSRN: https://ssrn.com/abstract=1864842

Adalbert Mayer (Contact Author)

Texas A&M University - Department of Economics ( email )

5201 University Blvd.
College Station, TX 77843-4228
United States

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