Social networks and finding a new job: evidence from Italy

If you lose your job, can you find a new one with a little help from your friends? A new column, by Federico Cingano and Alfonso Rosolia, at VoxEU.org presents evidence that displaced Italian workers with more employable friends and social contacts are unemployed for a shorter period of time. Cingano and Rosolia write,

How relevant are information networks for job search? In a recent paper (Cingano and Rosolia, forthcoming), we exploit a large matched employer-employee dataset covering all employment relationships in two northeastern Italian provinces over 20 years that allows us to assign to each individual at each point in time a specific social network, the one formed by his co-workers up to that point of his career. With this definition, a reasonable proxy for the amount of job-related information in the network is the proportion of employed social contacts at a given moment. We thus focus on workers displaced by firm closures and relate the length of their subsequent unemployment spell to his or her contacts’ employment rate when displacement occurs. Information spillovers are identified by comparing the performances of workers contemporaneously displaced by the same firm, while also controlling for a wide range of individual and group characteristics.

We find that the proportion of employed contacts plays a significant role in shaping re-employment patterns. Increasing the employment rate of contacts by one standard deviation reduces the job-seeker’s unemployment duration by about 10%; this effect is only slightly less than the reduction associated to a one standard deviation increase in own wage at displacement, a proxy of individual ability. Contacts’ employment status plays a stronger role if they recently searched for a job, and thus collected useful and up-to-date information, and if their current employer is closer (spatially and technologically) to the unemployed. We rule out that this evidence reflects a referral mechanism, whereby employed friends and contacts are also more skilled and thus reliable and more successful when recommending a worker to a prospective employer, by showing that proxies of their ability are not related to the displaced duration into unemployment.

Our findings show that job-relevant information generated and disseminated by employed workers through informal channels is a prominent element of a frictional labour market. The employment fall in recessionary periods can thus be quite disruptive, determining a lasting loss of efficiency of the matching between job seekers and firms. Consistently, recent evidence shows that temporary hikes in the number of vacancies relative to unemployment are a persistent feature of post-recession periods when the relationship between vacancies and unemployment is looked at over a longer horizon (Tasci and Lindner 2011). Our findings suggest that this may result from imperfect information about job opportunities rather than from a mismatch between labour demand and supply characteristics. As a consequence, employment-oriented stimulus policies may have had spillover effects in helping restore the information facilitation process that have so far gone unrecognised.

So friends may be good for you in more ways than one.

• Cingano F and A Rosolia (forthcoming), “People I know: job search and social networks”, Journal of Labor Economics.
• Tasci, M. and J. Lindner (2011), “Has the Beveridge curve shifted?, Federal Reserve Bank of Cleveland, Economic Trends. 10 August.