TY  - GEN
AB  - This paper develops a search model with heterogeneous workers and social networks.
High ability workers are more productive and have a larger number of professional contacts.
Firms have a choice between a high cost vacancy in the regular labour market and a low cost
job opening in the referral market. In this setting the model predicts that a larger number of
social contacts is associated with a larger wage gap between high and low ability workers and
a larger difference in the equilibrium unemployment rates. Next we demonstrate that the
decentralized equilibrium is inefficient for any value of the bargaining power. There are two
reasons for the inefficiency. First, the private gain from creating a job in the referral market
is always below the social gain, so the equilibrium unemployment of high ability workers is
above its optimal value. Moreover, high ability workers congest the market for low ability
workers, so the equilibrium wage inequality is inefficiently large. This is in contrast to the
result of Blazquez and Jansen (2008) showing that the distribution of wages is compressed
in a search model with heterogeneous workers. Finally, we show that a combination of taxes
and subsidies can restore the optimal allocation.
DA  - 2013
DO  - 10.4119/unibi/2915425
KW  - social capital
KW  - social networks
KW  - referrals
KW  - wage dispersion
KW  - wage compression
LA  - eng
PY  - 2013
SN  - 2196-2723
SP  - 24-
TI  - Optimal policy and the role of social contacts in a search model with heterogeneous workers
UR  - https://nbn-resolving.org/urn:nbn:de:0070-pub-29154254
Y2  - 2024-11-22T05:12:37
ER  -