Essays on social networks in the labor market

This dissertation consists of essays on the role of social networks in the labor market. The first essay examines the role of social networks in the labor market. I review the empirical and theoretical contributions in the literature. Although the prominent role of social connections in the job search process is well established, the empirical evidence regarding the effect on the labor market outcome seems to be conflicting. Another important question in the literature is why social networks are formed. Answering this question will give us more insight on the effects of social connections and the con icting empirical evidence. I also discuss the literature on endogenous networks which models network formation as a result of strategic behavior of individuals.;In the second essay titled "Endogenous Social Networks in the Labor Market", I develop an equilibrium model of endogenous network formation. In my model workers differ in their job loss rates and networks enable workers to find jobs more frequently. It is costly for workers to help other members of their network and workers trade off costs against the benefits they will derive from more frequent job offers when they are unemployed. My model is an extension of search and matching model by Pissarides that captures social networks in the matching process and allows for heterogeneity in job loss rates. I analyze survey data from PSID with information on job finding through social networks. Consistent with the data, our model predicts that workers with higher job loss rates are more likely to use their social contacts to find jobs; they have shorter unemployment durations and lower wages. The endogenous framework allows me to analyze how networks are affected by labor market conditions. I show that a more generous unemployment benefit scheme will reduce the use of networks and there is a negative correlation between unemployment rate and the fraction of workers using social contacts to get a job.