Social Networks in the Labor Markets

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Researchers have long realized that many workers find jobs through friends and relatives. Survey evidence suggests that about half of all workers found their jobs through personal contacts. Both sides of the labor market-- workers and firms-- appear to benefit from the use of employee referrals. The widespread use of referrals by workers and firms suggests that social structure--the pattern of social ties connecting individuals--may play an important role in determining labor- market outcomes. In particular, inbreeding bias (the prevalence of intra-group ties) and triad bias (the prevalence of cliques) in social networks may reduce labor-market efficiency and increase inequality. The purpose of this project is to analyze the implications of these network biases. Among the questions to be addressed are: (1) How do changes in these social structures affect labor market outcomes? (2) What is the equilibrium relationship among job-search method, network structure, wages, and employment? Of special interest is whether social network explanations of labor market inequality are consistent with observed correlations in labor force micro data. The project is important because it may help us to better understand why there are persistent racial and gender differences with respect to wages and other labor market outcomes.