Social Networks and Individual Labor Market Outcomes - Evidence from Linked Employer-Employee Panel Data

The dissertation focuses on the impact of social networks on the economic and employment opportunities of individuals. It examines the direct and indirect effects of professional ties on various labor market outcomes, such as job finding probabilities, wages, job stability, and upward mobility. Following recent trends in the measurement of network effects, the empirical work takes a relatively novel approach to quantify the economic benefits of social ties by utilizing a large Hungarian linked administrative employer-employee panel dataset. While the dataset does not contain direct information on social ties, it does have anonymous firm and individual identifiers, which can be used to identify different segments of networks, such as former co-workers and university peers. Building on studies using similar data, elaborating on empirical approaches already used to measure network effects, and incorporating recent developments in panel data methods, the dissertation presents three empirical studies on the role of social ties in the labor market. The first study contributed to the literature of co-workers, employee referral, and wage differences in multiple ways. First, by being the first to document the presence of wage gains commonly attributed to the referral activity of former co-workers through the estimation of a two-way fixed effects wage equation on starting wages. We found a 2.1% premium for men, which originates from the direct (“presence”) effect of referrers and match selection (that is co-workers facilitate the creation of better employer–employee pairings). Second, by jointly assessing those selection channels that may also contribute to the generation of the overall wage gains and by examining their relative importance. We demonstrated that there is an additional 1.7% and 0.9% wage advantage, reflecting individual and firm selection, respectively. The presence of such wage elements implies that former co-workers might help individuals getting into high-wage firms, and they also induce the selection of ...