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Social Networks in Determining Employment and Wages: Patterns, Dynamics, and Inequality

Calvó-Armengol, Antoni and Jackson, Matthew O. (2002) Social Networks in Determining Employment and Wages: Patterns, Dynamics, and Inequality. Social Science Working Paper, 1149. California Institute of Technology , Pasadena, CA. (Unpublished)

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We develop a model where agents obtain information about job opportunities through an explicitly modeled network of social contacts. We show that an improvement in the employment status of either an agent’s direct or indirect contacts leads to an increase in the agent’s employment probability and expected wages, in the sense of first order stochastic dominance. A similar effect results from an increase in the network contacts of an agent. In terms of dynamics and patterns, we show that employment is positively correlated across time and agents, and the same is true for wages. Moreover, unemployment exhibits persistence in the sense of duration dependence: the probability of obtaining a job decreases in the length of time that an agent has been unemployed. Finally, we examine inequality between two groups. If staying in the labor market is costly (in opportunity costs, education costs, or skills maintenance) and one group starts with a worse employment status or a smaller network, then that group’s drop-out rate will be higher and their employment prospects and wages will be persistently below that of the other group.

Item Type:Report or Paper (Working Paper)
Jackson, Matthew O.0000-0001-9846-4249
Additional Information:We thank Valentina Bali, Kim Border, Antonio Cabrales, Janet Currie, Isa Hafalir, Eddie Lazear, Massimo Morelli, and David Pérez-Castrillo, for helpful conversations and discussions. We also thank seminar participants as well as Preston McAfee and three anonymous referees for their comments and suggestions. We gratefully acknowledge the financial support of Spain’s Ministry of Education under grant SEC2001-0973 and the Lee Center for Advanced Networking at Caltech. Published as Calvó-Armengol, A., & Jackson, M. O. (2002). Social networks in determining employment and wages: patterns, dynamics and inequality. American Economic Review.
Group:Social Science Working Papers
Funding AgencyGrant Number
Ministerio de Educación, Cultura y Deporte (MECD)SEC2001-0973
Caltech Lee Center for Advanced NetworkingUNSPECIFIED
Subject Keywords:Networks, Labor Markets, Employment, Unemployment, Wages, Wage Inequality, Drop-Out Rates, Duration Dependence
Series Name:Social Science Working Paper
Issue or Number:1149
Classification Code:JEL: A14, J64, J31, J70
Record Number:CaltechAUTHORS:20170802-140339953
Persistent URL:
Usage Policy:No commercial reproduction, distribution, display or performance rights in this work are provided.
ID Code:79775
Deposited By: Jacquelyn Bussone
Deposited On:02 Aug 2017 21:23
Last Modified:03 Oct 2019 18:23

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