Occupational mismatch and social networks∗

We investigate the question when do the jobs found through social networks provide higher wages on average than the ones obtained on the market. In our model of heterogenous workers and heterogenous jobs the wages associated to a search method depend on the frequency that the given method provides information about jobs where the worker’s productivity is high. The performance of the formal market is increased by the intensity of search to find appropriate jobs. On the other hand, the performance of social networks depends on the type of contacts an unemployed has: professional and family contacts. Professional contacts always provide good information while family members transmit good offers with higher probability if they are of the same type as the unemployed (ie. the family network is homophilous). We show that for any search intensity and number of professional contacts the family network always can be sufficiently homophilous such that the social networks give better offers on average.