Networks in Labor Markets: Wage and Employment Dynamics and Inequality

Creators: Calvó-Armengol, Antoni; Jackson, Matthew O.

Abstract

We present a model of labor markets that accounts for the social network through which agents hear about jobs. We show that both wages and employment are positively associated (a strong form of correlation) across time and agents. We also analyze the decisions of agents regarding staying in the labor market or dropping out. If there are costs to staying in the labor market, then networks of agents that start with a worse wage status will have higher drop-out rates and there will be a persistent differences in wages between groups according to the starting states of their networks.

Additional Information

Original - October 2001 (no copy), Revised - August 1, 2005 We thank Valentina Bali, Kim Border, Antonio Cabrales, Janet Currie, Isa Hafalir, Eddie Lazear, Massimo Morelli, and David Perez-Castrillo, for helpful conversations and discussions. We also thank an associate editor and referees for their comments and suggestions. We gratefully acknowledge the financial support of Spain's Ministry of Education under grant BEC2002-02130, Fundacion Ramon Areces, the Barcelona Economics Program CREA, and the Lee Center for Advanced Networking at Caltech. This paper was formerly part of Calvo-Armengol and Jackson (2004). That paper was split into two parts, with the part under the former title looking at a special case of the networks outlined here and focusing on employment dynamics, and this part looking at a more general set of networks and exploring both wage and employment dynamics.

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