The Causal Impact of Social Connections on Firms' Outcomes

62 Pages Posted: 10 Jul 2017

See all articles by Marcus Eliason

Marcus Eliason

IFAU - Institute for Labour Market Policy Evaluation

Lena Hensvik

IFAU - Institute for Labour Market Policy Evaluation

Francis Kramarz

National Institute of Statistics and Economic Studies (INSEE) - National School for Statistical and Economic Administration (ENSAE); National Institute of Statistics and Economic Studies (INSEE) - Center for Research in Economics and Statistics (CREST)

Oskar Nordstrom Skans

Uppsala University; IZA Institute of Labor Economics

Date Written: July 2017

Abstract

The paper studies how social connections affect firm-level hiring decisions and performance. We use register data to characterize the social connections of firms' employees. For causal identification, we use displacements which create directed supply shocks towards the firms of the displaced workers' social connections. We make sure that our results are fully driven by these directed supply shocks. Results show that firms appear to prefer employed workers they are connected to over unconnected or unemployed workers when hiring. The employed and connected mostly go to high-productivity firms whereas the unemployed and unconnected tend to go to low-productivity firms. Strong connections - family, recent, durable, formed in small groups, between socially similar agents - matter the most. Displacements shocks cause connected firms, in particular low-productivity ones, to hire those workers they are connected to. Unconnected hires and separations are essentially unaffected. These supply shocks therefore cause the creation of additional jobs which increase firms' employment. In addition, we use these shocks to show that hiring connected workers has a positive causal impact on firm performance. These results are consistent with a stylized framework where connections reduce hiring frictions and where the firm-level possibility to hire connected workers is a function of changing outside options of these workers.

Keywords: job creation, Job Displacement, job search, networks

JEL Classification: J23, J30, J60

Suggested Citation

Eliason, Marcus and Hensvik, Lena and Kramarz, Francis and Nordström Skans, Oskar, The Causal Impact of Social Connections on Firms' Outcomes (July 2017). CEPR Discussion Paper No. DP12135, Available at SSRN: https://ssrn.com/abstract=2999665

Marcus Eliason (Contact Author)

IFAU - Institute for Labour Market Policy Evaluation ( email )

Box 513
751 20 Uppsala
Sweden

Lena Hensvik

IFAU - Institute for Labour Market Policy Evaluation ( email )

Box 513
751 20 Uppsala
Sweden

Francis Kramarz

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

92245 Malakoff Cedex
France

National Institute of Statistics and Economic Studies (INSEE) - Center for Research in Economics and Statistics (CREST)

15 Boulevard Gabriel Peri
Malakoff Cedex, 1 92245
France

Oskar Nordström Skans

Uppsala University ( email )

Box 513
Uppsala, 751 20
Sweden

IZA Institute of Labor Economics

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

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