Network Centrality in Labor Markets and Wage Dynamics

Network centrality measures how important an individual is for his network overall. We construct a novel measure of network centrality that takes into account a worker’s and coworkers’ tenure in the same occupation and firm. Using a linked employer-employee data source - the Brazilian Annual Social Information Report (RAIS) - we follow Brazilian workers in the formal labor market and we estimate the effects of a worker’s network centrality on their wages. For the period 2008-2013, we identify job networks and calculate a centrality index for workers in the city of São Paulo – Brazil. We present empirical evidence that job network relevance, measure by our centrality index, is important to explain wage differentials in the labor market. The wage returns are shown to be higher for those workers employed in larger companies, as well as for workers who have higher tenure. We also identify a positive relationship between a worker’s centrality index and his wage, which suggests that an increase of a worker’s relative relevance in his network is associated to higher wages. We believe that our study sheds light on the extent to which a worker’s importance in his job network can influence his wage over time.