With a Little Help from My Friends? Quality of Social Networks, Job Finding and Job Match Quality

Lorenzo Cappellari and Konstantinos Tatsiramos

The process of finding a new job for unemployed workers requires information about available job opportunities. In addition to using formal methods such as searching through an employment agency, there is large evidence that unemployed workers rely on informal contacts such as friends and relatives. The impact of searching through networks on the quality of the jobs found is subject to controversy. While many studies find that finding a job through friends and relatives is associated with a positive effect on wages, other studies find a negative effect.

In this Nottingham School of Economics working paper, published in The European Economic Review, Konstantinos Tatsiramos and his co-author Lorenzo Cappellari contribute to this literature by using longitudinal survey data from the UK with information on friendship ties to study the effect of network quality on job finding and the quality of the job match, where the quality of friendship ties is measured by the employment status of the three best friends. Exploiting the longitudinal features of the data, the authors propose three estimation strategies based on different identification assumptions which all suggest that better network quality through a higher number of employed friends increases the job finding rate. This finding is consistent with the recent theoretical literature on the role of a higher employment rate within the network of social contacts in the job search process. For the effect of network quality on job match quality the findings suggest substantial heterogeneity by skill level and the type of relationship, with a positive effect on wages for high-skilled workers who form networks with non-familial contacts, and a negative effect on wages for low-skilled workers with more employed familial contacts. These findings reconcile previous mixed empirical evidence of network effects on wages and are consistent with theoretical results showing that the effect of network quality on job match quality depends on the degree of homophily, which is the tendency of individuals to befriend others who are similar to themselves.

Forthcoming The European Economic Review, “With a Little Help from My Friends? Quality of Social Networks, Job Finding and Job Match Quality” by Lorenzo Cappellari and Konstantinos Tatsiramos

http://dx.doi.org/10.1016/j.euroecorev.2015.04.002

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