Less unequal when social networks lead to jobs


The question of how contacts affect job opportunities has long been a subject of debate. A new study by Marcus Eliason, Lena Hensvik, Francis Kramarz, and Oskar Nordström Skans sheds new light on the issue. The results challenge the perception that social contacts reinforce inequality in the labor market by primarily benefiting high-income individuals who have contacts in other high-paying firms. However, the study finds no evidence to support this notion. Instead, it reveals that contacts are more important for low-wage firms, which hire people from various income levels. Therefore, there are indications that job placements through contacts are actually more equal than traditional, more formal search methods, as such recruitments involve greater movement between income levels.

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  • Social and professional networks usually consist of individuals with similar incomes. Doctors often know other doctors, while carpenters often know other carpenters.
  • Contacts influence the type of job one gets, and there is a higher chance of securing a job at a workplace where one has a social connection. However, deep contacts developed over time, such as family or close friends, carry more weight in job recruitment than superficial professional contacts.
  • The study finds no evidence to support the idea that social networks only benefit high-income individuals. Instead, it suggests that job placements through contacts are less unequal in their distribution across income levels compared to those mediated through other formal search methods.
  • Companies with lower wages rely more heavily on social contacts to hire individuals with both previous high and low incomes. As a result, employees move more frequently between different wage levels through social contacts than previously believed.

It is common for people to socialize and work with individuals who resemble themselves. This can involve similarities in age, residing in the same geographical area, having similar income levels, or pursuing similar professions. These social networks can play a role when seeking employment. If a person becomes unemployed, they are more likely to find a new job at a company at which they have a social connection. For example, if both Sara and Adam lose their jobs at the same company, Sara is more likely to find employment at Company X, where her former colleague work, compared to Adam, who lacks that connection.

The study also shows that social connections have a greater influence on employment in low-wage companies compared to high-wage ones. This means that a person has a greater chance of securing a job through contacts at a low-wage company compared to a high-wage company. The study found no support for the theory that social contacts more often lead to employment for high-income individuals and at high-paying employers.

In summary, the results indicate that, on the one hand, individuals tend to have existing professional networks with people earning roughly the same income. On the other hand, social connections lead to more job placements in low-wage firms, regardless of the employee's previous income level. Job placements through social contacts are thus more equal than those occurring through the labor market, as they promote mobility between different types of employers.

About the paper

Article: "Social connections and the sorting of workers to firms"
Authors: Marcus Eliason, Lena Hensvik, Francis Kramarz och Oskar Nordström-Skans
Published in Journal of Econometrics


If you want to know more about the study, contact the researcher Lena Hensvik or Oskar Nordström-Skans.

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Last modified: 2021-09-20