Do Friends and Relatives Really Help in Getting a Good Job?

Abstract

Informal contacts are extensively used by both firms and workers to find jobs and fill vacancies. The common wisdom in the economic literature is that jobs created through this channel are of better quality and pay higher wages than jobs created through formal methods. This paper explores the empirical evidence for European countries using the European Community Household Panel (ECHP) and discovers a large cross-country variation in the wage premiums to jobs found through informal methods. In some countries personal contacts lead to better paying jobs, while the opposite happens in others. This paper argues that such variation can be explained by looking at firms' recruitment strategies. In labour markets where employers invest largely in formal recruitment activities, matches created through this channel are likely to be of average better quality than those created through informal networks. A simple theoretical model is used to show that employers invest more in recruitment for high productivity jobs and for positions that require considerable training. The empirical predictions of the theory are successfully tested using industry-level data on recruitment costs. JEL Classification: J31, J64, M51

With a little help from my friends? Quality of social networks, job finding and job match quality

“…2 Previous empirical research on network effects in the labor market is based either on survey information on the use of informal search methods, such as friends and relatives, or on administrative records in which networks are defined indirectly using observable proxies, such as neighborhood, firm, or ethnicity. Studies on the use of informal search methods include Simon and Warner (1992), Pistaferri (1999), Marmaros and Sacerdote (2002), Loury (2006), Bentolila et al (2010) and Pellizzari (2010). 3 Studies defining networks indirectly using proxies include Topa (2001), Weinberg et al (2004), Bayer et al (2008), Hellerstein et al (2011) and Schmutte (2015), who use geographic proximity at the neighborhood level; Cingano and Rosolia (2012), who define networks at the firm level; Edin et al (2003), Munshi (2003) and Beaman (2012), who define networks based on immigrants' ethnic origin; and Dustmann et al (2011), who use information on both firms and ethnicity.…”

Just the Facts: The Case for Workplace Transparency

“…It may not allow job seekers to learn about enough different jobs to identify a good job. 134 Moreover, because friendship and family ties are richer within rather than across racial and ethnic categories, reliance on those ties by employers and job seekers tends to afford disparate access to jobs and job information. 135 Reputation: As Samuel Estreicher nicely puts it, for defenders of freedom of contract in the employment setting, "[r]eputation is often offered as a .…”

Informal search, bad search?: the effects of job search method on wages among rural migrants in urban China

“…For example, Pellizzari (2010) assumes referees are heterogeneous in their reputation or willingness to refer unfit workers. Pellizzari argues that if referees are more likely to refer lower (higher) quality candidates, then there exists a wage penalty (premium) associated with the informal search.…”

“…Pellizzari (2010), on the other hand, uses fixed-effect panel data approaches to further control for all the time-invariant individual characteristics. The identification in her paper comes from 1) the sample of workers who change their job search methods over time and 2) the assumption that there are no time-varying unobservables driving the relationship between job search methods and wages.…”

“…1 There has been much research, whether theoretical or empirical, on the importance of informal job search in the job search process. While there is conclusive evidence on the positive effects of informal job search on employment opportunities (e.g., Cingano and Rosolia, 2012;Zhang and Li, 2003;Oregan and Quigley, 1993) and job search time (Pellizzari, 2010), there is no consensus on whether and how it matters for one's wages. Both theoretical predictions and empirical evidence are mixed regarding the link between informal job search and wages.…”