Do friends and relatives really help in getting a good job?

Michele Pellizzari

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: Informal contacts are extensively used by both firms and workers to find jobs and fill vacancies. The common wisdom in the economic literature is that jobs created through this channel are of better quality and pay higher wages than jobs created through formal methods. This paper explores the empirical evidence for European countries using the European Community Household Panel (ECHP) and discovers a large cross-country as well as cross-industry variation in the wage differentials between jobs found through informal and formal methods. Across countries and industries wage premiums and wage penalties to finding jobs through personal contacts are equally frequent. This paper argues that such variation can be explained by looking at firms' recruitment strategies. In labour markets where employers invest largely in formal recruitment activities, matches created through this channel are likely to be of average better quality than those created through informal networks. A simple theoretical model is used to show that employers invest more in recruitment for high productivity jobs and for positions that require considerable training. The empirical predictions of the theory are successfully tested using industry-level data on recruitment costs.

Keywords: Social Networks; Wage Differentials; Recruitment; Hiring (search for similar items in EconPapers)
JEL-codes: J31 J64 M51 (search for similar items in EconPapers)
Pages: 59 pages
Date: 2004-03
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (32)

Downloads: (external link)
http://eprints.lse.ac.uk/19980/ Open access version. (application/pdf)

Related works:
Journal Article: Do Friends and Relatives Really Help in Getting a Good Job? (2010)
Working Paper: Do Friends and Relatives Really Help in Getting a Good Job? (2004)
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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:19980

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