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Social contacts and referrals in a labor market with on-the-job search

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  • Zaharieva, Anna

Abstract

This paper develops a matching model of the labor market with heterogeneous firms, on-the-job search and family referrals. The overall effect of referrals on wages can be decomposed into three distinct components. First, if referrals are used to help unemployed partners find jobs, then recommended workers are disproportionately concentrated in the left tail of the earnings distribution. This is a negative concentration effect of referrals, which emerges because workers accept (forward to the partner) job offers from more (less) productive employers. Second, if referrals are also used by workers to pool their less successful employed partners to more productive jobs, then the process of on-the-job search is intensified. This is a positive pooling effect of referrals. Third, better connected workers bargain higher wages for a given level of productivity. This is a positive effect of referrals on reservation wages and earnings. In the equilibrium, the overall effect of referrals can be positive (wage premiums) or negative (wage penalties). The negative effect is dominating in labor markets with strong productivity heterogeneity of firms and large bargaining power of workers. Otherwise, the positive effect is dominating. Referrals can have a negative effect on social welfare if there is a sharp drop in the search intensity after workers accept low productivity jobs.

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  • Zaharieva, Anna, 2015. "Social contacts and referrals in a labor market with on-the-job search," Labour Economics, Elsevier, vol. 32(C), pages 27-43.
    • Handle: RePEc:eee:labeco:v:32:y:2015:i:c:p:27-43
    DOI: 10.1016/j.labeco.2014.12.001
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    Cited by:

    1. Damdinsuren, Erdenebulgan & Zaharieva, Anna, 2023. "Expectation formation and learning in the labour market with on-the-job search and Nash bargaining," Labour Economics, Elsevier, vol. 81(C).
    2. 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.
    3. Martina Rebien & Michael Stops & Anna Zaharieva, 2020. "Formal Search And Referrals From A Firm'S Perspective," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 61(4), pages 1679-1748, November.
    4. 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.
    5. Stupnytska, Yuliia & Zaharieva, Anna, 2015. "Explaining U-shape of the referral hiring pattern in a search model with heterogeneous workers," Journal of Economic Behavior & Organization, Elsevier, vol. 119(C), pages 211-233.
    6. Julio J. Rotemberg, 2017. "Group Learning, Wage Dispersion and Non-stationary Offers," Economica, London School of Economics and Political Science, vol. 84(335), pages 365-392, July.
    7. 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.
    8. Alba Verónica Méndez Delgado & Edgar Eduardo Sánchez Mena & David Castro Lugo, 2018. "Efectividad de los mecanismos de búsqueda de empleo en el mercado laboral mexicano," Ensayos de Economía 16778, Universidad Nacional de Colombia Sede Medellín.

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    More about this item

    Keywords

    Family referrals; Dyads; On-the-job search; Productivity distribution; Welfare;
    All these keywords.

    JEL classification:

    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
    • D10 - Microeconomics - - Household Behavior - - - General

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