Working Paper: CEPR ID: DP3511
Authors: Pierre Cahuc; François Fontaine
Abstract: This Paper provides a simple matching model in which unemployed workers and employers can be matched together through social networks and through more efficient, but also more costly, methods. In this framework, decentralized decisions to utilize social networks in the job search process can be inefficient and give rise to multiple equilibria for some parameters' values. More precisely, in a decentralized equilibrium, social networks can be over-utilized with respect to an efficient allocation in some circumstances, and under-utilized in others. Moreover, the existence of different job search methods can give rise to a higher job search intensity than the efficient one. This is in sharp contrast with the standard result, derived in matching models, according to which search intensity is always too low if not efficient. Eventually, in the presence of different job search methods, conditional unemployment benefit hikes can improve welfare when individuals are risk neutral.
Keywords: job search; social networks; unemployment
JEL Codes: E24; J64; J68
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| decentralized use of social networks (Z13) | inefficiencies in job searching (J68) |
| unemployment benefit hikes (J65) | welfare improvement (I38) |