Advertisement

Journal of Population Economics

, Volume 31, Issue 3, pp 837–876 | Cite as

Informal search, bad search?: the effects of job search method on wages among rural migrants in urban China

  • Yuanyuan Chen
  • Le WangEmail author
  • Min Zhang
Original Paper

Abstract

The use of informal job search method is prevalent in many countries. There is, however, no consensus in the literature on whether it actually matters for wages, and if it does, what are the underlying mechanisms. We empirically examine these issues specifically for rural migrants in urban China, a country where one of the largest domestic migration in human history has occurred over the past decades. We find that there exists a significant wage penalty for those migrant workers who have conducted their search through informal channels, despite their popularity. Our further analysis suggests two potential reasons for the wage penalty: (1) the informal job search sends a negative signal (of workers’ inability to successfully find a job in a competitive market) to potential employers, resulting in lower wages, and (2) there exists a trade-off between wages and search efficiency for quicker entry into local labor market. We also find some evidence that the informal job search may lead to low-skilled jobs with lower wages. We do not find strong evidence supporting alternative explanations.

Keywords

Social network Rural-urban migrants Wage Search friction Information asymmetry Chinese economy 

JEL Classification

J31 J64 P2 P5 

Notes

Acknowledgments

We thank Kevin Lang, Ming Lu, Shangjin Wei, Jeff Zax, Junsen Zhang, two knowledgeable anonymous referees, and seminar participants at various seminars and conferences for their helpful comments. All errors are our own.

Funding Information

Min Zhang thanks the financial support from the National Natural Science Foundation of China (Grant No. 71673172 and No. 71203132). Chen’s research is supported by the National Science Foundation of China (71773074), National Science Foundation of China Youth Program (71303149), the Shanghai Soong Ching Ling Foundation (Lu Jiaxian and Gao Wenying Special Foundation), and the Program for Innovative Research Team of Shanghai University of Finance and Economics (2014110310).

Compliance with ethical standards

Conflict of interest

The authors declare that they have no conflict of interest.

References

  1. Akay A, Giulietti C, Robalino JD, Zimmermann KF (2014) Remittances and well-being among rural-to-urban migrants in China. Rev Econ Househ 12(3):517–546CrossRefGoogle Scholar
  2. Angrist JD, Pischke J (2009) Mostly harmless econometrics. Princeton University Press, PrincetonGoogle Scholar
  3. Antoninis M (2006) The wage effects from the use of personal contacts as hiring channels. J Econ Behav Organ 59(1):133–146CrossRefGoogle Scholar
  4. Beggs J, Hurlbert J (1997) The social context of men’s and women’s job search ties: membership in voluntary organizations, social resources, and job search outcomes. Sociol Perspect 40(4):601–622CrossRefGoogle Scholar
  5. Bentolila S, Michelacci C, Suarez J (2004) Social networks and occupational choice. CEPR Discussion Paper No. 4308Google Scholar
  6. Bound DA, Jaeger J, Baker RM (1995) Problems with instrumental variables estimation when the correlation between the instruments and the endogenous explanatory variable is weak. J Am Stat Assoc 90:443–450Google Scholar
  7. Bridges W, Villemez W (1986) Informal hiring and income in the labor market. Am Sociol Rev 51(4):574–82CrossRefGoogle Scholar
  8. Campbell WK, Sedikides C, Reeder GD, Elliot AJ (2000) Among friends? An examination of friendship and the self-serving bias. Br J Soc Psychol 39:229–239CrossRefGoogle Scholar
  9. Chan KW (2010) The household registration system and migrant labor in China: notes on a debate. Popul Dev Rev 36(2):357–364CrossRefGoogle Scholar
  10. Chen GZ, Jin Y, Yue Y (2010) Peer migration in China. NBER Working Paper No. 15671Google Scholar
  11. Chung A, Zhang J (2015) An incentive model of children’s human capital investment. Unpublished ManuscriptGoogle Scholar
  12. Cingano F, Rosolia A (2012) People I know: job search and social networks. J Labor Econ 30(2):291–332CrossRefGoogle Scholar
  13. Corcoran M, Datcher L, Duncan G (1980) Information and influence networks in labor markets. VIII. Greg Duncan and James Morgan Institute Social Research, MichiganGoogle Scholar
  14. de Brauw A, Giles J (2017) Migrant opportunity and the educational attainment of youth in rural China. J Hum Resour 272-311(1):574–82Google Scholar
  15. Demurger S, Gurgand M, Li S, Yue X (2009) Migrants as second-class workers in urban China? A decomposition analysis. J Comp Econ 37:610–628CrossRefGoogle Scholar
  16. Ebbes M, Wedel P, Bockenholt U (2009) Frugal IV alternatives to identify the parameter for an endogenous regressor. J Appl Econ 24:446–468CrossRefGoogle Scholar
  17. Emran MS, Sun Y (2011) Magical transition? Intergenerational educational and occupational mobility in rural China: 1988-2002. Unpublished ManuscriptGoogle Scholar
  18. Fang T, Gunderson M, Lin C (2016) The use and impact of job search procedures by migrant workers in China. China Econ Rev 37:154–165CrossRefGoogle Scholar
  19. Farre L, Klein R, Vella F (2013) A parametric control function approach to estimating the returns to schooling in the absence of exclusion restrictions: an application to the NLSY. Empir Econ 44(1):111–133CrossRefGoogle Scholar
  20. Fernandez RM, Castilla EJ, Moore P (2000) Social capital at work: networks and employment at a phone center. Am J Sociol 105(5):1288–1356CrossRefGoogle Scholar
  21. Fontaine F (2007) A job search model with social networks: the better match hypothesis. University of Strasbourg Mimeo, StrasbourgGoogle Scholar
  22. Gottlieb P (1991) Rethinking the Great Migration. Bloomington, Indiana University PressGoogle Scholar
  23. Granovetter M (1974) Getting a job: a study of contacts and careers. University of Chicago Press, ChicagoGoogle Scholar
  24. Granovetter M (1995) The economic sociology of firms and entrepreneurs. Russell Sage Foundation, New YorkGoogle Scholar
  25. Grossman J (1989) Land of hope: Chicago, Black Southerners, and the Great Migration. The University of Chicago Press, ChicagoCrossRefGoogle Scholar
  26. Gustafsson B, Li S, Sicular T (2008) Inequality and public policy in China. Cambridge University Press, CambridgeCrossRefGoogle Scholar
  27. Hagan JM (1994) Deciding to be legal: a Maya community in Houston. Temple University Press, PhiladelphiaGoogle Scholar
  28. Harvey AC (1976) Estimating regression models with multiplicative heteroskedasticity. Econometrica 44(3):461–465CrossRefGoogle Scholar
  29. Hellerstein JK, Kutzbach MJ, Neumark D (2014) Do labor market networks have an important spatial dimension J Urban Econ 79:39–58CrossRefGoogle Scholar
  30. Holzer H (1988) Search method use by unemployed youth. J Labor Econ 1:1–20CrossRefGoogle Scholar
  31. Imbens GW, Angrist JD (1994) Identification and estimation of local average treatment effects. Econometrica 62(2):467–475CrossRefGoogle Scholar
  32. Ioannides YM, Loury LD (2004) Job information networks, neighborhood effects, and inequality. J Econ Lit 42:1056–1093CrossRefGoogle Scholar
  33. Johnson W (1978) A theory of job shopping. Q J Econ 92(2):1056–93CrossRefGoogle Scholar
  34. Jovanovic B (1979) Job matching and theory of turnover. J Polit Econ 87(5):972–90CrossRefGoogle Scholar
  35. Kanbur R, Zhang X (2005) Fifty years of regional inequality in China: a journey through central planning, reform, and openness. Rev Dev Econ 9(1):87–106CrossRefGoogle Scholar
  36. Kelejian HH (1971) Two stage least squares and econometric systems linear in parameters but nonlinear in the endogeneous variables. J Am Stat Assoc 66:373–74CrossRefGoogle Scholar
  37. Klein R, Vella F (2009a) Estimating the return to endogenous schooling decisions for Australian workers via conditional second moment. J Hum Resour 44(4):1047–1065Google Scholar
  38. Klein R, Vella F (2009b) A semiparametric model for binary response and continuous outcomes under index heteroscedasticity. J Appl Econ 24(5):735–762CrossRefGoogle Scholar
  39. Klein R, Vella F (2010) Estimating a class of triangular simultaneous equations models without exclusion restrictions. J Econ 154:154–164CrossRefGoogle Scholar
  40. Korenman S, Turner SC (1996) Employment contacts and minority-white wage difference. Ind Relat 35(1):106–122CrossRefGoogle Scholar
  41. Kugler A (2003) Employee referrals and efficiency wages. Labour Econ 10 (5):531–556CrossRefGoogle Scholar
  42. Lewbel A (2012) Using heteroskedasticity to identify and estimate mismeasured and endogenous variables. J Bus Econ Stat 30(1):67–80CrossRefGoogle Scholar
  43. Li Q, Racine J (2004) Cross-validated local linear nonparametric regression. Stat Sin 14:485–512Google Scholar
  44. Long WN, Appleton S, Song L (2013) Job contact networks and wages of rural-urban migrants in China. IZA Discussion Paper No. 7577Google Scholar
  45. Loury LD (2006) Some contacts are more equal than others: informal networks, job tenure, and wages. J Labor Econ 24(2):299–318CrossRefGoogle Scholar
  46. Maasoumi E, Millimet DL, Sarkar D (2009) Who benefits from marriage. Oxf Bull Econ Stat 71(1):1–33CrossRefGoogle Scholar
  47. Marks C (1989) Farewell, we’re good and gone: the great black migration. Bloomington, Indiana University PressGoogle Scholar
  48. Marmaros D, Sacerdote B (2002) Peer and social networks in job search. Eur Econ Rev 46(4-5):870–879CrossRefGoogle Scholar
  49. Marsden P, Gorman E (2001) Social network, job changes, and recruitment. Ivar Berg and Arne Kalleberg, New YorkCrossRefGoogle Scholar
  50. Marsden PV (1987) Core discussion networks of Americans. Am Sociol Rev 52(1):122–131CrossRefGoogle Scholar
  51. Mencken FC, Winfield I (2000) Job search and sex segregation: does sex of social contact matter Sex Roles 42:847–64CrossRefGoogle Scholar
  52. Meng X (2000) Regional wage gap, information flow, and rural-urban migration. In: Zhao Y, West L (eds) Rural labor flows in China. Berkeley: University of California PressGoogle Scholar
  53. Meng X, Zhang J (2001) The two-tier labor market in urban China: occupational segregation and wage differentials between urban residents and rural migrants in Shanghai. J Comp Econ 29(3):485–504CrossRefGoogle Scholar
  54. Menjivar C (2000) Fragmented ties: Salvadoran immigrant networks in America. University of California Press, BerkeleyGoogle Scholar
  55. Messinis G (2013) Returns to education and urban-migrant wage differentials in China: IV quantile treatment effects. China Econ Rev 26:39–55CrossRefGoogle Scholar
  56. Millimet DL, Roy J (2011) Three new empirical tests of the pollution haven hypothesis when environmental regulation is endogenous. IZA Discussion Paper No. 5911Google Scholar
  57. Millimet DL, Tchernis R (2013) Estimation of treatment effects without an exclusion restriction: with an application to the analysis of the school breakfast program. J Appl Econ 28:982–1017Google Scholar
  58. Millimet DL, Ye J (2014) Social networks and internal migration in the United States. Unpublished ManuscriptGoogle Scholar
  59. Moore G (1990) Structural determinants of men’s and women’s personal networks. Am Sociol Rev 55(5):726–735CrossRefGoogle Scholar
  60. Mortensen DT, Vishwanath T (1994) Personal contacts and earnings: it is who you know!. Labor Econ 1:187–201CrossRefGoogle Scholar
  61. Mroz T (1999) Discrete factor approximations for use in simultaneous equation models: estimating the impact of a dummy endogenous variable on a continuous outcome. J Econ 92:233–274CrossRefGoogle Scholar
  62. Munshi K (2003) Networks in the modern economy: Mexican migrants in the us labor market. Q J Econ 118(2):549–599CrossRefGoogle Scholar
  63. Munshi K (2014) Community networks and the process of development. J Econ Perspect 28(4):49–76CrossRefGoogle Scholar
  64. Oregan KM, Quigley JM (1993) Family networks and youth access to jobs. J Urban Econ 34(2):230–248CrossRefGoogle Scholar
  65. Pagan A, Vella F (1989) Diagnostic tests for models based on unit record data: a survey. J Appl Econ 4:S29–S60CrossRefGoogle Scholar
  66. Pellizzari M (2010) Do friends and relatives really help in getting a good job Ind Labor Relat Rev 63(3):494–510CrossRefGoogle Scholar
  67. Pistaferri L (1999) Informal networks in the Italian labor market. Giornale degli Economisti e Annali di Economia 58(3-4):355–375Google Scholar
  68. Polachek SW, Siebert WS (1993) The economics of earnings. Cambridge University Press, New YorkCrossRefGoogle Scholar
  69. Psacharopoulos G, Patrinos HA (2004) Returns to investment in education: a further update. Educ Econ 12:111–134CrossRefGoogle Scholar
  70. Qu Z, Zhao Z (2011) Evolution of the Chinese rural-urban migrant labor market from 2002 to 2007. IZA Discussion Paper 5241Google Scholar
  71. Racine J, Li Q (2004) Nonparametric estimation of regression functions with both categorical and continuous data. J Econ 119:99–130CrossRefGoogle Scholar
  72. Rees A (1966) Information networks in labor markets. Am Econ Rev 56:559–566Google Scholar
  73. Renzulli H, Aldrich LA, Moody J (2000) Family matters: gender, networks, and entrepreneurial outcomes. Soc Forces 79(2):523–546CrossRefGoogle Scholar
  74. Rozelle S, Guo L, Shen M, Hughart A, Giles J (1999) Leaving China’s farms: survey results of new paths and remaining hurdles to rural migration. China Q 158:367–393CrossRefGoogle Scholar
  75. Saloner G (1985) Old boy networks as screening mechanisms. J Labor Econ 3 (3):255–267CrossRefGoogle Scholar
  76. Simon CJ, Warner JT (1992) Matchmaker, matchmaker: the effect of old boy networks on job match quality, earnings, and tenure. J Labor Econ 10(3):306–329CrossRefGoogle Scholar
  77. Smith S (2000) Mobilizing social resources: race, ethnic, and gender differences in social capital and persisting wage inequalities. Sociol Q 41(4):509–537CrossRefGoogle Scholar
  78. Tumen S (2013) Informal versus formal search: which yields a better pay. MPRA Working Paper 50446Google Scholar
  79. Ullah A (1985) Specification analysis and econometric models. J Quant Econ 2:187–209Google Scholar
  80. Verbeek M (2004) A guide to modern econometrics, 2nd ed. Wiley, New YorkGoogle Scholar
  81. Wang L (2012) Economic transition and college premium in urban China. China Econ Rev 23:238–252CrossRefGoogle Scholar
  82. Wang L (2013) How does education affect the earnings distribution in urban China Oxf Bull Econ Stat 75(3):435–454CrossRefGoogle Scholar
  83. Wooldridge JM (2002) Econometric analysis of cross section and panel data, 1st edn. MIT University Press, CambridgeGoogle Scholar
  84. Wooldridge JM (2010) Econometric analysis of cross section and panel data, 2nd edn. MIT University Press, CambridgeGoogle Scholar
  85. Yang DT (1999) Urban-biased policies and rising income inequality in China. American Economic Review, Papers and Proceedings (2)Google Scholar
  86. Zaharieva A (2013) Social welfare and wage inequality in search equilibrium with personal contacts. Labour Econ 23:107–121CrossRefGoogle Scholar
  87. Zhang X, Li G (2003) Does Guanxi matter to nonfarm employment. J Comp Econ 31:315–331CrossRefGoogle Scholar
  88. Zhao Y (2003) The role of migrant networks in labor migration: the case of China. Contemp Econ Policy 21(4):500–511CrossRefGoogle Scholar
  89. Zhao Z, Qu Z, Liao J, Zhang K (2010) Wage and income inequalities among Chinese rural-urban migrants from 2002 to 2007. Unpublished ManuscriptGoogle Scholar

Copyright information

© Springer-Verlag GmbH Germany 2017

Authors and Affiliations

  1. 1.Shanghai University of Finance and Economics, Key Laboratory of Mathematical Economics (SUFE), Ministry of EducationShanghaiChina
  2. 2.Department of EconomicsUniversity of OklahomaNormanUSA
  3. 3.IZABonnGermany
  4. 4.Faculty of Economics and ManagementEast China Normal UniversityShanghaiChina

Personalised recommendations