Why Are Similar Workers Paid Differently? The Role of Social Networks

Francois Fontaine

No 1786, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: We provide a matching model where identical workers are embedded in ex-ante identical social networks. Job arrival rate is endogenous and wages are bargained. We study the evolution of networks over time and characterize the equilibrium distribution of unemployment rates across networks. We emphasize that wage dispersion arises endogenously as the consequence of the dynamics of networks, firms’ strategies and wage bargaining. Moreover, contrary to a generally accepted idea, social networks do not necessary induce stickiness in unemployment dynamics. Our endogenous matching technology shows that the effects of networks on the dynamics mostly hinge on search externalities. Our endogenous framework allows us to quantify these effects.

Keywords: wage dispersion; matching; social networks (search for similar items in EconPapers)
JEL-codes: E24 J64 J68 (search for similar items in EconPapers)
Pages: 24 pages
Date: 2005-09
New Economics Papers: this item is included in nep-bec, nep-dge, nep-lab, nep-mac, nep-net, nep-soc and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Published - published in: Journal of Economic Dynamics and Control, 2008, 32(12), 3960-3977

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Journal Article: Why are similar workers paid differently? the role of social networks (2008)
Working Paper: Why are similar workers paid differently ? The role of social networks (2005)
Working Paper: Why are similar workers paid differently? The role of social networks (2004)
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