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

28 Pages Posted: 6 Jun 2003

See all articles by Antoni Calvo-Armengol

Antoni Calvo-Armengol

Autonomous University of Barcelona - Department of Economics; IZA Institute of Labor Economics

Yves Zenou

Monash University - Department of Economics; Stockholm University; Research Institute of Industrial Economics (IUI); IZA Institute of Labor Economics; Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 2 versions of this paper

Date Written: May 2003

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: Coordination Failures, Social Network, Personal Communication

JEL Classification: D83, J64

Suggested Citation

Calvo-Armengol, Antoni and Zenou, Yves, Job Matching, Social Network and Word-of-Mouth Communication (May 2003). Available at SSRN: https://ssrn.com/abstract=412467

Antoni Calvo-Armengol

Autonomous University of Barcelona - Department of Economics ( email )

Campus Bellaterra
Barcelona, 08193
Spain
+34 93 581 3068 (Phone)

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Yves Zenou (Contact Author)

Monash University - Department of Economics ( email )

Australia

Stockholm University ( email )

Universitetsvägen 10
Stockholm, Stockholm SE-106 91
Sweden

Research Institute of Industrial Economics (IUI) ( email )

P.O. Box 5501
S-114 85 Stockholm
Sweden

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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