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PhD Labour Market Workshops for useful comments and suggestions. I also greatly benefited from discussions with

By Michele Pellizzari, London School Economics, Job Market Paper, Barbara Petrongolo and Steve Pischke

Abstract

Informal contacts are extensively used by both firms and workers to find jobs and fill vacancies. The common wisdom in the economic literature is that jobs created through this channel are of better quality and pay higher wages than jobs created through formal methods. This paper explores the empirical evidence for European countries using the European Community Household Panel (ECHP) and discovers a large cross-country as well as cross-industry variation in the wage di�erentials between jobs found through informal and formal methods. Across countries and industries wage premiums and wage penalties to finding jobs through personal contacts are equally frequent. This paper argues that such variation can be explained by looking at firms ’ recruitment strategies. In labour markets where employers invest largely in formal recruitment activities, matches created through this channel are likely to be of average better quality than those created through informal networks. A simple theoretical model is used to show that employers invest more in recruitment for high productivity jobs and for positions that require considerable training. The empirical predictions of the theory are successfully tested using industry-level data on recruitment costs

Topics: Social Networks, Wage Di�erentials, Recruitment, Hiring
Year: 2003
OAI identifier: oai:CiteSeerX.psu:10.1.1.194.5841
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