Job contact networks

Many workers hear about or obtain their jobs through friends and relatives. The aim of this paper is twofold. First, we relate both individual and aggregate labor market outcomes to the network structure of personal contacts. Second, we study strategic network formation. To this purpose, we develop a model specifying at the individual level both the decision to form contacts with other agents, and the process by which information about jobs is obtained and transmitted. We show that equilibrium networks always exist and that only moderate levels of network asymmetry can be sustained at equilibrium. Also, we establish a general nonmonotonicity result on information flow and unemployment with respect to network size in symmetric networks. r 2003 Elsevier Inc. All rights reserved. JEL classification: A14; J64; J31; J70