The Temptation of Social Networks under Job Search Frictions

This paper presents descriptive evidence that although social networks are helpful to find jobs, the jobs found through social networks tend to be mismatched. The paper uses nationally representative matched employer-employee data in Bangladesh that include direct measures of match quality. Less educated and seemingly poorer workers are more likely to have found their jobs through social networks. Compared to workers at the same occupation level in the same firm who were matched through formal channels, those matched through social networks found their jobs quicker but have lower match quality and earn less. The mechanism, suggested by a theoretical model, is as follows: even when social networks are connected to mismatched jobs, workers can be tempted to use social networks to find mismatched jobs for fear of finding nothing. This temptation is stronger for less skilled and poorer workers, because costly formal channels are less rewarding and affordable for them.