Social capital and earnings inequalities: The role of informal job search in Hungary

The study Social Capital and Earnings Inequalities addresses two questions. (1) Is it true that good jobs in Hungary can be obtained through friends and relatives? (2) Why do personal connections help people to get a good job? The theoretical part of the book is concerned with the second question. A distinction is made between two mechanisms that might generate contact effects: particularism (personal contacts push employers towards hiring a friend instead of other applicants) and intensive search (contacts reduce the uncertainty of employers with respect to the abilities of applicants). After a comprehensive review of existing theories, hypotheses are derived in order to disentangle these mechanisms. The first reseach question and the hypotheses are examined using a rather unique data set about young job seekers who completed secondary vocational education in 1998. The findings are the following. First, personal contacts help people to find good jobs. It is found that both high status contacts and employee referrals are helpful to find jobs in firms and occupations which are likely to provide long-term earning advantages. Additionally, high status contacts inform job seekers about opportunities that are associated with better earnings opportunities, and employee referrals increase the chances of keeping the job. Second, network resources do not have an influence on the chances of finding a job through high status persons or employee referrals, thus inequalities in network resources do not contribute to actual earnings inequalities. Finally, evidence does not support our hypotheses that would discriminate between the particularism and the intensive search mechanisms. Therefore it remains unknown why good jobs can be accessed through high status contacts and employee referrals