Journal of Evolutionary Economics

, Volume 21, Issue 4, pp 703–719 | Cite as

Referral hiring, endogenous social networks, and inequality: an agent-based analysis

Regular Article

Abstract

The importance of referral hiring, which is workers finding employment via social contacts, is nowadays an empirically well documented fact. It also has been shown that social networks for finding jobs can create stratification. These analyses are, by and large, based on exogenous network structures. We go beyond the existing work by building an agent-based model of the labor market in which the social network of potential referees is endogenous. Workers invest some of their endowments into building up and fostering their social networks as an insurance device against future job losses. We look into the manner in which social networks and inequality respond to increased uncertainty in the labor market. We find that larger variability in firms’ labor demand reduces workers’ efforts put into social networks, leading to lower inequality.

Keywords

Referral hiring Endogenous social networks Inequality Agent-based model Labor market transitions 

Notes

Acknowledgements

We would like to thank Herbert Dawid and Philipp Harting and two anonymous referees for their suggestions, as well as all the participants commenting at the Conference of the Eastern Economic Association in Boston 2008, at the Artificial Economics Conference 2008 in Innsbruck, the conference of the European Social Simulation Association in Brescia 2008, the WEHIA conference 2009 in Beijing, the Tagung des Vereins für Socialpolitik 2009, and at the 2009 Cendef conference in Amsterdam, and at research seminars in Pisa and Münster.

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Copyright information

© Springer-Verlag 2011

Authors and Affiliations

  1. 1.Department of Business Administration and EconomicsBielefeld UniversityBielefeldGermany
  2. 2.Free University of Bozen/Bolzano, School of Economics and ManagementPiazza Università 1BozenItaly

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