Social network formation and labor market inequality

Gergely Horvath and Rui Zhang

Economics Letters, 2018, vol. 166, issue C, 45-49

Abstract: We study how differences in interpersonal skills lead to inequality among workers when social connections are endogenously formed and workers find jobs through their contacts. We show that the equilibrium network structure is very unequal in terms of links and access to jobs. The equilibrium network is not socially optimal because workers impose negative externality on each other by forming more links. The degree of inequality is larger in the equilibrium than what would be socially optimal. In the equilibrium, high-skilled individuals overinvest in networking while low-skilled individuals underinvest, which enlarges the impact of differences in interpersonal skills. The degree of inequality is largest when job availability is moderate.

Keywords: Social networks; Labor markets; Inequality; Interpersonal skills (search for similar items in EconPapers)
JEL-codes: D85 J01 J30 J64 (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (9)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:166:y:2018:i:c:p:45-49

DOI: 10.1016/j.econlet.2018.01.026

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