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Double Matching: Social Contacts in a Labour Market with On-the-Job Search

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  • Zaharieva, Anna

    (Center for Mathematical Economics, Bielefeld University)

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.

Suggested Citation

  • Zaharieva, Anna, 2015. "Double Matching: Social Contacts in a Labour Market with On-the-Job Search," Center for Mathematical Economics Working Papers 473, Center for Mathematical Economics, Bielefeld University.
    • Handle: RePEc:bie:wpaper:473
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    References listed on IDEAS

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    Cited by:

    1. 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.
    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. Semih Tumen, 2016. "Informal versus formal search: Which yields better pay?," International Journal of Economic Theory, The International Society for Economic Theory, vol. 12(3), pages 257-277, September.
    4. 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.
    5. Stupnytska, Yuliia & Zaharieva, Anna, 2015. "Explaining the U-Shape of the Referral Hiring Pattern in a Search Model with Heterogeneous Workers," Center for Mathematical Economics Working Papers 511, Center for Mathematical Economics, Bielefeld University.
    6. Zaharieva, Anna, 2013. "Social welfare and wage inequality in search equilibrium with personal contacts," Labour Economics, Elsevier, vol. 23(C), pages 107-121.
    7. 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.
    8. 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.

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    More about this item

    Keywords

    Social networks; referrals; on-the-job search; social capital; wage inequality;
    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

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