Social Connections and the Sorting of Workers to Firms

56 Pages Posted: 21 May 2019

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

Independent

Oskar Nordstrom Skans

Uppsala University; IZA Institute of Labor Economics

Multiple version iconThere are 2 versions of this paper

Abstract

The literature on social networks often presumes that job search through (strong) social ties leads to increased inequality by providing privileged individuals with access to more attractive labor market opportunities. We assess this presumption in the context of sorting between AKM-style person and establishment fixed effects. Our rich Swedish register data allow us to measure connections between agents – workers to workers and workers to firms – through parents, children, siblings, spouses, former co-workers and classmates from high school/college, and current neighbors. In clear contrast with the above presumption, there is less sorting inequality among the workers hired through social networks. This outcome results from opposing factors. On the one hand, reinforcing positive sorting, high-wage job seekers are shown to have social connections to high-wage workers, and therefore to high-wage firms (because of sorting of workers over firms). Furthermore, connections have a causal impact on the allocation of workers across workplaces – employers are much more likely to hire displaced workers to whom they are connected through their employees, in particular if their social ties are strong. On the other hand, attenuating positive sorting, the (causal) impact is much stronger for low-wage firms than it is for high-wage firms, irrespective of the type of worker involved, even conditional on worker fixed effects. The lower degree of sorting among connected hires thus arises because low-wage firms use their (relatively few) connections to high-wage workers to hire workers of a type that they are unable to attract through market channels.

Keywords: networks, job search, job displacement, hiring

JEL Classification: J60, J30, J23

Suggested Citation

Eliason, Marcus and Hensvik, Lena and Kramarz, Francis and Nordström Skans, Oskar, Social Connections and the Sorting of Workers to Firms. IZA Discussion Paper No. 12323, Available at SSRN: https://ssrn.com/abstract=3390312

Marcus Eliason

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

Independent

Oskar Nordström Skans (Contact Author)

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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