Working Paper: CEPR ID: DP13672
Authors: Francis Kramarz; Oskar Nordström Skans; Lena Hensvik; Marcus Eliason
Abstract: The literature on social networks often presumes that job search through (strong) social ties leads toincreased inequality by providing privileged individuals with access to more attractive labor marketopportunities. We assess this presumption in the context of sorting between AKM-style person andestablishment fixed effects. Our rich Swedish register data allow us to measure connections betweenagents – workers to workers and workers to firms – through parents, children, siblings, spouses,former co-workers and classmates from high school/college, and current neighbors. In clear contrastwith the above presumption, there is less sorting inequality among the workers hired through socialnetworks. This outcome results from opposing factors. On the one hand, reinforcing positive sorting,high-wage job seekers are shown to have social connections to high-wage workers, and therefore tohigh-wage firms (because of sorting of workers over firms). Furthermore, connections have a causalimpact on the allocation of workers across workplaces – employers are much more likely to hiredisplaced workers to whom they are connected through their employees, in particular if their socialties are strong. On the other hand, attenuating positive sorting, the (causal) impact is much strongerfor low-wage firms than it is for high-wage firms, irrespective of the type of worker involved, evenconditional on worker fixed effects. The lower degree of sorting among connected hires thus arisesbecause low-wage firms use their (relatively few) connections to high-wage workers to hire workersof a type that they are unable to attract through market channels.
Keywords: networks; job search; job displacement; hiring
JEL Codes: J23; J30; J60
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| social connections (Z13) | likelihood of displaced workers being hired by connected establishments (J63) |
| family connections (J12) | likelihood of displaced workers being hired by connected establishments (J63) |
| social connections (Z13) | sorting inequality (C69) |
| connected hires from low-wage firms (J63) | sorting inequality (C69) |
| social connections (Z13) | hiring patterns (J63) |
| social connections (Z13) | causal impact stronger for low-wage employers (F66) |