DP4523 Social Networks and Labour Market Transitions

Author(s): Yann Bramoullé , Gilles Saint-Paul

Publication Date: August 2004

Keyword(s): unemployment , social networks , economic inbreeding , social capital , duration dependence

JEL(s): E24 , J6 , Z13

Programme Areas: International Macroeconomics , Labour Economics

Link to this Page: www.cepr.org/pubs/dps/DP4523.asp

We study the influence of social networks on labour market transitions. We develop the first model where social ties and job status co-evolve through time. Our key assumption is that the probability of formation of a new tie is greater between two employed individuals than between an employed and an unemployed individual. We show that this assumption generates negative duration dependence of exit rates from unemployment. Our model has a number of novel testable implications. For instance, we show that a higher connectivity among unemployed individuals reduces duration dependence and that exit rates depend positively on the duration of the last job held by the unemployed worker.