Working Paper: CEPR ID: DP4523
Authors: Yann Bramoull; Gilles Saint-Paul
Abstract: We study the influence of social networks on labour market transitions. We develop the first model where social ties and job status co-evolve through time. Our key assumption is that the probability of formation of a new tie is greater between two employed individuals than between an employed and an unemployed individual. We show that this assumption generates negative duration dependence of exit rates from unemployment. Our model has a number of novel testable implications. For instance, we show that a higher connectivity among unemployed individuals reduces duration dependence and that exit rates depend positively on the duration of the last job held by the unemployed worker.
Keywords: duration dependence; economic inbreeding; social capital; social networks; unemployment
JEL Codes: E24; J6; Z13
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Probability of forming social ties between employed individuals (J29) | Negative duration dependence of exit rates from unemployment (C41) |
| Long-term unemployed individuals have fewer connections with employed workers (J65) | Lower exit rates for long-term unemployed individuals (J68) |
| Higher connectivity among unemployed individuals (J69) | Reduced duration dependence of exit rates from unemployment (C41) |
| Greater number of unemployed ties can enhance job finding prospects (J68) | Higher job finding probabilities when those ties find employment (J68) |
| Exit rates positively depend on the duration of the last job held (J63) | Increased likelihood of finding new employment after becoming unemployed (J68) |
| Individuals with longer employment durations have more ties with employed workers (J29) | Increased likelihood of finding new employment after becoming unemployed (J68) |
| Extent of social separation between employed and unemployed individuals is low when labor market turnover is high (J60) | Offsets biases in tie formation (C78) |