The weakness of common job contacts

Abstract

Many people obtain job information from friends and acquaintances. However, one factor influencing labor-market outcomes that is ignored in the literature is the presence of overlapping friendship circles in social networks. We find that overlapping friendship networks produce correlated information flows, resulting in an increased probability of two events: either receiving redundant job offers or receiving no job offers at all. Consequently, people with common contact networks exhibit worse employment prospects even if they have the same number of information providers and compete with the same number of people for vacancies. In quantitative terms, the impact of overlapping friendship circles rivals that of the number of direct contacts and contacts’ contacts. This implies that the results in Calvó-Armengol (2004) only apply for networks where people’s friends are neither connected nor have common contacts. Because overlapping friendship circles are a crucial aspect of strong relationships, our findings uncover an alternative mechanism behind “The Strength of Weak Ties” (Granovetter, 1973): their ability to maintain independence in job information flows. We further show that people with common job contacts earn lower incomes on average. However, conditional on being employed, their expected wage is higher because they can take advantage of the multiple job offers received by selecting the one with the highest pay.