On the Puzzle of Diversification in Social Networks with Occupational Mismatch

Anna Zaharieva

VfS Annual Conference 2016 (Augsburg): Demographic Change from Verein für Socialpolitik / German Economic Association

Abstract: This paper incorporates social networks into a frictional labour market framework. There are two worker types and two occupations. Both occupations are subject to correlated business cycle fluctuations in labour demand. The equilibrium in this model is characterized by occupational mismatch which is associated with a wage penalty. This paper shows that there exists a unique value of network homophily maximizing the present value of income. Therefore, there is a gain for risk-neutral workers if their network is diversified between the two occupations. The reason for diversification is that the present value of income is a non-linear function of the network composition. Thus, it is not the desire to reduce the volatility of income as in standard portfolio theory which is driving the decision of workers. Nevertheless, the optimal diversification level is higher with stronger negative correlation in labour demand between the two occupations, with a lower unemployment benefit and with a higher probability of recession in the primary occupation. On the other hand, the optimal diversification level is reduced if there is on-the-job search in the state of mismatch.

JEL-codes: J22 J46 J64 (search for similar items in EconPapers)
Date: 2016
New Economics Papers: this item is included in nep-soc
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.econstor.eu/bitstream/10419/145561/1/VfS_2016_pid_6407.pdf (application/pdf)

Related works:
Working Paper: On the Puzzle of Diversification in Social Networks with Occupational Mismatch (2015)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:zbw:vfsc16:145561

Access Statistics for this paper

More papers in VfS Annual Conference 2016 (Augsburg): Demographic Change from Verein für Socialpolitik / German Economic Association Contact information at EDIRC.
Bibliographic data for series maintained by ZBW - Leibniz Information Centre for Economics ().