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On-the-Job Search and Finding a Good Job Through Social Contacts

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  • Horvath Gergely

    (School of Public Administration, Southwestern University of Finance and Economics, 227 Zhizhi Building, 555 Liutai Road Wenjiang District, 611130 Chengdu, Sichuan, China)

Abstract

The interactions between on-the-job search and finding a job through social contacts are investigated in a Diamond–Mortensen–Pissarides search model with heterogeneous wages. Workers may find a job through their social contacts and on the formal market. The presence of social contacts increases the overall welfare in society as it rises the number of workers earning high wages and decreases the unemployment rate. However, unemployed workers finding a job through social ties earn lower wages on average than those who obtain a job on the formal market. This result follows from on-the-job search: employed workers pass only those offers on to their neighbors that pay (weakly) lower wages than their current wages earned. Despite the wage discount, unemployed workers still might find it beneficial to search via social ties because arrival rate of offers is higher for this channel than for the formal market when the number of neighbors is sufficiently large. There is a trade-off between unemployment duration and wages earned for workers obtaining a job via social ties.

Suggested Citation

  • Horvath Gergely, 2014. "On-the-Job Search and Finding a Good Job Through Social Contacts," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 14(1), pages 93-125, February.
    • Handle: RePEc:bpj:bejtec:v:14:y:2014:i:1:p:33:n:3
    DOI: 10.1515/bejte-2013-0033
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    References listed on IDEAS

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    1. Andrea Galeotti & Luca Paolo Merlino, 2014. "Endogenous Job Contact Networks," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 55(4), pages 1201-1226, November.
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    Cited by:

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    2. Neugart, Michael & Zaharieva, Anna, 2018. "Social Networks, Promotions, and the Glass-Ceiling Effect," Center for Mathematical Economics Working Papers 601, Center for Mathematical Economics, Bielefeld University.
    3. Salwaty Jamaludin & Rusmawati Said & Normaz Wana Ismail & Norashidah Mohamed Nor, 2021. "Are Jobs Available in the Market? A Perspective from the Supply Side," Sustainability, MDPI, vol. 13(4), pages 1-18, February.
    4. Gergely Horváth, 2020. "The Impact of Social Segregation on the Labor Market Outcomes of Low‐Skilled Workers," Scandinavian Journal of Economics, Wiley Blackwell, vol. 122(1), pages 3-37, January.
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    6. Zaharieva, Anna, 2018. "On the optimal diversification of social networks in frictional labour markets with occupational mismatch," Labour Economics, Elsevier, vol. 50(C), pages 112-127.
    7. Zaharieva, Anna, 2015. "On the Puzzle of Diversification in Social Networks with Occupational Mismatch," Center for Mathematical Economics Working Papers 547, Center for Mathematical Economics, Bielefeld University.

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    More about this item

    Keywords

    social networks; labor market search; wages;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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