Fitting Social Capital, Informal Job Search, and Labor Market Outcomes in Hungary(1)

Although many studies examined the impact of (both accessed and mobilized) social capital on labor market outcomes, it is not clear what mechanisms are responsible for these "whom do you know" effects. The quest for mechanisms is important when one wishes to compare social capital effects across different societies. This paper explores the empirical implications of three mechanisms (extensive search, intensive search, and favoritism) for the relationship between accessed and mobilized social capital, on the one hand, and labor market outcomes, on the other. The derived implications are tested using data from a survey of young people who completed their secondary vocational education in 1998. I find that high status contacts seem to inform job seekers about jobs with higher income. This contact effect is especially large when the firm has personnel department. Analysis of job offer and job acceptance decisions shows that knowing a high status person increases the likelihood of rejecting a known job offer, and contacts who are employed at the firm do not increase the likelihood that the job seeker is offered the job. These findings imply that the extensive search mechanism is operating.