Social networks and labor market outcomes: Theoretical expansions and econometric analysis

This study contributes to exploration and understanding of the role of social context in economic outcomes through expansion of theoretical and empirical work on the impact of social networks (ties between individuals and/or groups that are not mediated by markets). These ties can have substantial economic impact through their roles as information conduits, and through their influence on decision-making by job seekers and employers. Because social networks vary from person to person, they also play a major distributional role in conferring different opportunities among individuals. This dissertation expands the literature in labor market theory, and in the theory linking economic outcomes and social context, by providing new behavioral microfoundations for the impact of social networks in job search, extending the understanding of social network dynamics beyond the employer-initiated employee referral model introduced by Montgomery in 1989. The theory presented introduces two explanations of social network impact on labor market outcomes, an “early-bird” dynamic, and a “search-efficiency” dynamic. The early-bird effect reconciles survey answers more closely with theory, and fills an important gap in the explanation and interpretation of social network dynamics. The search-efficiency effect highlights another advantage of job-seekers with strong social networks. A unified framework for the conceptualization of job search success, incorporating social network effects, anticipated productivity, and discrimination is subsequently presented in Chapter 4. The dissertation\u27s econometric analysis addresses issues of the absence of direct data on job search networks, and endogenous determination of an explanatory variable. Causal relationships advanced in theories of friendship formation are utilized to provide a necessary alternative structure to two-stage least squares analysis. Although the quality of the available data limits the conclusions that can be drawn from the econometric investigation, the study provides a strong base of theory for future inquiry and suggests that future research may contribute greatly to public policy