We introduce an irregular network structure into a model of frictional, on-the-job search in which workers find jobs through their network connections or directly from firms. We show that jobs found through network search have wages that stochastically dominate those found through direct contact. In irregular networks, heterogeneity in the worker's position within the network leads to heterogeneity in wage and employment dynamics: better-connected workers climb the job ladder faster. Despite this rich heterogeneity from the network structure, the mean-field approach allows the problem of our workers to be formulated tractably and recursively. We then calibrate a quantitative version of our mechanism, showing it is consistent with several empirical findings regarding networks and labor markets: jobs found through networks have higher wages and last longer. Finally, we present new evidence consistent with our model that job-to-job switches at higher rungs of the ladder are more likely to use networks.
We introduce an irregular network structure into a model of frictional, on-the-job search in which workers find jobs through their network connections or directly from firms. We show network-found jobs have higher wages, and thus better-connected workers climb the job ladder faster. The mean field approach allows us to formulate heterogeneous workers' recursive problem tractably. Our calibration is consistent with several empirical findings because of a composition-not information-effect. We also introduce new model-consistent evidence: Job-to-job switches at higher ladder rungs are more likely to use networks.
We present a model of time allocation between formal and informal labour supply, where workers learn of informal job opportunities from their peers. In addition to formal income taxation and enforcement, individuals' labour supply decisions depend on the number of their peers with informal jobs and the strength of social ties. Workers allocate more time to informal activities when tax enforcement is lax and job information transmission is good. More connected social networks (e.g., wheel, complete) feature lower average income but higher average utility than poorly connected social networks (e.g., star, empty). Average income may be non-monotonic in tax enforcement. JEL classification: E26, D85, J22, J64Réseaux informels de travail. On présente un modèle d'allocation du temps entre l'offre de travail formel et informel dans le cas où les travailleurs apprennent l'existence de possibilités de travail informel de leurs pairs. En plus de dépendre de l'imposition des revenus formels et de la rigueur de ce processus, les décisions des individus dans leur offre de travail dépendent du nombre des pairs qui ont du travail informel et de la force des liens sociaux. Les travailleurs allouent plus de temps aux activités informelles quand l'application de la loi fiscale est relâchée et que la transmission de l'informationà propos du travail informel est bonne. Des réseaux sociaux mieux connectés (e.g., roue, complet) se traduisent par un revenu moyen plus bas mais par une utilité moyenne plusélevée que des réseaux sociaux plus pauvrement connectés (e.g.étoile, vide). Le revenu moyen peut avoir un lien non-monotoneà la nature de l'application de la loi fiscale.We are grateful to Peter Townley and Anne Villamil for their insightful comments and support. We are also indebted to Daniel Bernhardt, Nurlan Turdaliev, Yuntong Wang, and seminar participants at the University of Illinois at Urbana-Champaign, University of Windsor, and the Midwest Economics Association for helpful comments and suggestions. We gratefully acknowledge the helpful comments and suggestions from the anonymous referee. All remaining errors are our own.
We study optimal taxation when jobs are found through a social network. The network determines employment, which workers may influence by engaging in social activities. The network parameters play an important role in determining the economy's employment level and the optimal income tax. The optimal labor income tax depends on both the traditional intensive margin of labor supply and a new extensive margin that depends on the structure of the social network. Social activities that promote social connections are instrumental to acquiring job information; taxation thus discourages both social activities and labor supply, reducing employment. Labor taxes vary positively with labor supply and negatively with employment. When networking is absent, taxes are higher and the economy's employment rate is lower. The optimal capital tax rate is zero, independent of labor market frictions. Social networking reduces job search frictions and is welfare-enhancing.
This paper modifies the standard labor market search model with social networks. Labor market networks is an important job information transmission channel and the complementarity of network and direct search by the unemployed amplify the economy's short-run response to a technological shock. We show that network search has important quantitative consequences for the business cycle, in particular, for output and unemployment.
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