Job Matching, Social Network and Word-of-Mouth Communication

Antoni Calvó-Armengol and Yves Zenou

No 771, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: Workers are embedded within a network of social relationships and can communicate through word-of-mouth. They can find a job either directly or through personal contacts. From this micro scenario, we derive an aggregate matching function that has the standard properties but fails to be homogeneous of degree one because of coordination failures between workers. We show that, when the network size increases, on average, the unemployed workers hear about more vacancies through their social network but, at the same time, it is more likely that multiple vacancies reach the same unemployed worker. Above a certain critical value, this job overcrowding becomes so important that job matches decrease with network size. We then establish existence and uniqueness of the labor market equilibrium and study its properties. In dense enough networks, the equilibrium unemployment rate increases with network size whereas the latter has an ambiguous effect on wages. Finally, we demonstrate that the decentralized market equilibrium is not efficient because of both search and network externalities.

Keywords: personal communication; social network; coordination failures (search for similar items in EconPapers)
JEL-codes: D83 J64 (search for similar items in EconPapers)
Pages: 28 pages
Date: 2003-05
New Economics Papers: this item is included in nep-net and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (34)

Published - published in: Journal of Urban Economics, 2005, 57 (3), 500-522

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Journal Article: Job matching, social network and word-of-mouth communication (2005)
Working Paper: Job Matching, Social Network and Word-of-Mouth Communication (2001)
Working Paper: Job Matching, Social Network and Word-of-Mouth Communication (2001)
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