Double Matching: Social Contacts in a Labour Market with On-the-Job Search

33 Pages Posted: 8 Sep 2013

See all articles by Anna Zaharieva

Anna Zaharieva

Bielefeld University - Department of Business Administration and Economics

Date Written: December 4, 2012

Abstract

This paper develops a labour market matching model with heterogeneous firms, on-thejob search and referrals. Social capital is endogenous, so that better connected workers bargain higher wages for a given level of productivity. This is a positive effect of referrals on reservation wages. At the same time, employees accept job offers from more productive employers and forward other offers to their unemployed social contacts. Therefore, the average productivity of a referred worker is lower than the average productivity in the market. This is a negative selection effect of referrals on wages. In the equilibrium, wage premiums (penalties) associated with referrals are more likely in labour markets with lower (higher) productivity heterogeneity and lower (higher) worker’s bargaining power. Next, the model is extended to allow workers help each other climb a wage ladder. On-the-job search is then intensified and wage inequality is reduced as workers employed in high paid jobs pool their less successful contacts towards the middle range of the productivity distribution.

Keywords: Social networks, referrals, on-the-job search, social capital, wage inequality

JEL Classification: J23, J31, J64

Suggested Citation

Zaharieva, Anna, Double Matching: Social Contacts in a Labour Market with On-the-Job Search (December 4, 2012). Institute of Mathematical Economics Working Paper No. 473, Available at SSRN: https://ssrn.com/abstract=2321956 or http://dx.doi.org/10.2139/ssrn.2321956

Anna Zaharieva (Contact Author)

Bielefeld University - Department of Business Administration and Economics ( email )

P.O. Box 100131
D-33501 Bielefeld, NRW 33501
Germany

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