Informal networks in the Italian labor market

Luigi Pistaferri

94 citations0/0 files storedGiornale degli Economisti

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Labor market dynamics and wage inequality Education and Labor Relations Social Capital and Networks

Abstract

In this paper I focus on the effect of informal networks on individuals’ job search and earnings. In the empirical analysis, conducted on data drawn from the 1991 and 1993 Bank of Italy Survey of Household Income and Wealth, I show that while seeking work through informal networks (referrals by friends, relatives, or acquaintances to potential employers) increases the probability of receiving job offers, it is also associated with lower earnings. In a regression of annual earnings on human capital variables and a dummy for whether the worker was hired via informal networks, the latter displays a negative and statistically significant coefficient. I consider two alternative explanations: unobserved low skills/ability and firms’ attributes. I find that while controlling for the latter halves the magnitude of the effect, it does not remove it entirely.

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References

1981Panel data and unobservable individual effects 1993How Computers Have Changed the Wage Structure: Evidence from Microdata, 1984-1989 1991Social Networks and Labor-Market Outcomes: Toward an Economic Analysis 1987Wage determinants: A survey and reinterpretation of human capital earnings functions 1997The Returns to Computer Use Revisited: Have Pencils Changed the Wage Structure Too?1986Search Method Use by Unemployed Youth 1996HOW EFFECTIVE ARE STATE EMPLOYMENT AGENCIES? JOBCENTRE USE AND JOB MATCHING IN BRITAIN

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2016Why the Referential Treatment? Evidence from Field Experiments on Referrals 2004Limited Network Connections and the Distribution of Wages 2012Learning about match quality and the use of referrals 2005The wage effects from the use of personal contacts as hiring channels 2009The use of informal networks in Italy: Efficiency or favoritism?

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