Social Networks and Labor Market Transitions

Abstract

We study the influence of social networks on labor market transitions. We develop the firstmodel where social ties and job status coevolve through time. Our key assumption is that theprobability of formation of a new tie is greater between two employed individuals thanbetween an employed and an unemployed individual. We show that this assumptiongenerates negative duration dependence of exit rates from unemployment. Our model has anumber of novel testable implications. For instance, we show that a higher connectivityamong unemployed individuals reduces duration dependence and that exit rates dependpositively on the duration of the last job held by the unemployed worker.

Keywords: social capital, social networks, unemployment duration, economic inbreeding, labor market transitions

JEL Classification: E24, J6, Z13