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Endogenous Job Contact Networks

Author

Listed:
  • Andrea Galeotti

    (University of Essex)

  • Luca Paolo Merlino

    (ECARES - European Center for Advanced Research in Economics and Statistics - ULB - Université libre de Bruxelles)

Abstract

We develop a model where workers, anticipating the risk of becoming unemployed, invest in connections in order to access information about available jobs that other workers may have. The investment in connections is high when the job separation rate in the labor market is moderate, whereas it is low for either low or high levels of job separation rate. The equilibrium response of network investment to changes in the labor market conditions generates novel empirical predictions. In particular, the probability that a worker finds a new job via his connections increases in the separation rate when the separation rate is low, whereas it decreases when the separation rate is high. These predictions are supported by the empirical patterns that we document for the U.K. labor market.

Suggested Citation

  • Andrea Galeotti & Luca Paolo Merlino, 2014. "Endogenous Job Contact Networks," Post-Print hal-01263754, HAL.
    • Handle: RePEc:hal:journl:hal-01263754
    DOI: 10.1111/iere.12087
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