Working Paper: NBER ID: w26358
Authors: Ayal Y. Chenzion; James E. Rauch
Abstract: We model network formation in a firm. Agents learn about the quality of their working relationships with each other. Their good relationships become their networks. Accumulating relationships becomes increasingly costly, however. Over time agents become less open to forming relationships with others unknown to them, leading their networks to be front-loaded with agents they met near the beginning of their careers. The interaction of this dynamic with turnover yields predictions about the time pattern of history dependence in an agent’s network as a function of his tenure. Mutual openness of newly arrived agents in a firm also leads to the cross-section prediction of “cohort attachment,” a tendency for members of an agent’s hiring cohort to be disproportionately represented in his network. When members of a network formed within a firm are subsequently split across many firms, the desire to renew their successful working relationships can lead to job referrals. Former co-workers who provide referrals will be drawn disproportionately from the referred workers’ hiring cohorts at their previous employers.
Keywords: network formation; job referrals; cohort attachment; history dependence
JEL Codes: D85; J63; J64
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Agents' match quality (C78) | Willingness to form new relationships (L14) |
| Turnover (J63) | Historical composition of an agent's network (D85) |
| Persistence of close relationships (D15) | Agents' networks frontloaded with coworkers met early in their careers (D85) |
| Tenure increases (C41) | Likelihood of maintaining early connections (J12) |
| Cohort attachment (C92) | Overrepresentation of hiring cohort in agent's network (L85) |
| Newly arrived agents are less likely to form relationships with existing agents (L85) | Disproportionate representation of hiring cohort in networks (D85) |
| Desire to renew successful working relationships (L14) | Job referrals from the referred worker's hiring cohort (J68) |
| Cohort membership (C92) | Likelihood of providing referrals (M51) |