Coworkers, Networks, and Job Search Outcomes

Abstract: Social networks are an important channel of information transmission in the labor market.This paper studies the mechanisms by which social networks have an impact on labormarket outcomes of displaced workers. We base our analysis on administrative records forthe universe of private sector employment in Austria where we define work-related networksformed by past coworkers. To distinguish between mechanisms of information transmission,we adopt two different network perspectives. From the job-seeker's perspective we analyzehow network characteristics affect job finding rates and wages in the new jobs. Then weswitch to the perspective of the hiring firm and analyze which types of displaced workersget hired by firms that are connected to a closing firm via past coworker links. Our resultsindicate that employment status and the firm types of former coworkers are crucial for thejob finding success of their displaced contacts. Moreover, 21% of displaced workers find anew job in a firm that is connected to their former workplace. Among all workers that weredisplaced from the same closing firm those with a direct link to a former coworker are twiceas likely to be hired by the connected firm than workers without a link. These results highlightthe role of work related networks in the transmission of job information and stronglysuggest that job referrals are an important mechanism.

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