Job Information Networks, Neighborhood Effects, and Inequality

Abstract

JOB INFORMATION NETWORKS, NEIGHBORHOOD EFFECTS AND INEQUALITY Yannis M. Ioannides and Linda Datcher LouryThe paper explores the theoretical and empirical literature to examine the use by different social groups of informal sources of information provided by friends, relatives and acquaintances during job search and its consequences for the job market. It also addresses the role of network structure and size, the resource endowments of contacts, and nature of the links between contacts to explain differences in the effects of job information networks. In doing so, the paper also turns to the sociology literature on job information networks and provides an economic perspective on such sociological concepts as strong versus weak ties, inbreeding, distance from structural holes, etc. The paper distinguishes between models of exogenous job information networks, that is where individuals obtain job-related information through a given social structure, and endogenous job information networks, which are social networks that result from individuals' uncoordinated actions.The paper pays special attention to such issues as physical and social proximity and sharing of information and discusses them in the context of the recent social interactions and neighborhood effects literature. Finally, the paper outlines a model that integrates job information networks, where interactions occur in business cycle frequencies, with the dynamics of human capital formation, which include the joint effects of parental, community and neighborhood human capital, and are set in life cycle frequencies, for the purpose of organizing suggestions for future research and examining earned income inequality. effects is organized into a number of broad categories of seven stylized facts. Section 3 starts by reviewing the sociology literature on job information networks. It then turns in subsections 3.2 -2 3.5 to models of exogenous job information networks, ones in which individuals obtain job-related information through a given social structure and, in subsection 3.6, to the consequences for job information networks of the recent literature on evolutionary models of information transmission. ContentsSection 4 reviews models of endogenous information networks, ones which result from individuals' uncoordinated action. It starts in subsection 4.1 with the recent literature on strategic network formation and then examines, in subsection 4.2, endogenous job information networks. Section 5 sketches the outline of a model that integrates job information networks and the dynamics of human capital formation and thus provides an overarching theme for the purpose of examining earned income inequality. Section 6 summarizes suggestions for future research and Section 7 concludes. Stylized Facts about Job Information Networks and Neighborhood EffectsThe first generation of empirical work on job information networks has established several stylized facts about such networks. The first stylized fact is that there is widespread use of friends, relatives, a...

Social networks and the labour market mismatch

“…A number of studies have found that social networks can lead to economic opportunities, efficient transactions and ultimately to economic growth as they allow people to 'leverage on resources' such as knowledge and information of members in the network (Lin, 1999;Mouw 2003;Ioannides and Loury, 2004). The positive role of social capital on individuals' labour market outcomes has been the subject of considerable research, with a growing interest by economists to study the impact of social networks on labour market outcomes in terms of employment entry and wages.…”

Local social capital and geographical mobility

“…The name ''Rotary" derived from the early practice of rotating meetings among members' offices." 8 See also Granovetter (1995) on how social capital improves welfare through the creation of an efficient network comprising social ties that allows for better expectations; Ioannides and Loury (2004) on how networks affect labor-market outcomes and inequality; Montgomery (1991) on the importance of referrals to outcomes on the labor market. 9 The dataset used by Belot and Ermisch (2006) allows them to explore other instruments to describe the environment in which the individual spent his/her childhood.…”

With a little help from my friends? Quality of social networks, job finding and job match quality

“…Survey evidence gathered across countries and over time has consistently indicated that between one third and one half of job matches are created through friends and relatives (see e.g. Loury, 2004, andTopa, 2011). Despite the importance of the use of contacts in job search, there is limited empirical evidence on the effect of network quality on labor market outcomes.…”