A dynamic model of job networking and social influences on employment

Abstract

This paper explores an economy in which personal connections facilitate job search. In the model, a firm receives information on the productivity of those job applicants with social ties to its current employees. In addition to providing a theory of networking, the model endogenously generates two classic theories in economic sociology. First, there is a highly non-linear relationship between average human capital in a group of socially connected individuals and the group's employment rate. Small changes in group composition may cause large changes in employment, as suggested in Wilson's ‘social isolation’ explanation for high unemployment rates among poor African-Americans. The model also supports Granovetter's ‘strength of weak ties’ hypothesis, which holds that acquaintances are more valuable job contacts than close friends.