The impact of social networks on mobility: a closer look at social networks’ impact on wages

Abstract

This thesis examines the role of social networks in job search and the impact that using social networks can have on wages. The literature reviewed in this thesis shows that friends and relatives are a useful and popular method in job search due to its high productivity and effectiveness. Other theories shift the focus towards employers and how referrals can help employers since they often have incomplete information about the actual abilities of the job seeker. By using referrals, employers can more accurately identify the highly skilled workers they want to hire.

The quality of an individual’s social network can also be a crucial factor in the job search process. Higher-quality connections which are often older males with higher income and longer job tenure, can help individuals secure higher-paying jobs.

The labor market’s efficiency is also important since the more effective the official labor market is, the more selective firms are when they hire through informal channels like referrals. Firms being more selective will increase the average quality and wage of individuals hired through informal channels like referrals.

In the empirical section, I use a dataset collected by the Aarresaari network in 2020, which collected information on the career and employment situation of Finnish university graduates from 2015. Using the dataset, I show that there is a correlation between the importance that individual places on their social networks for their employment and wage premiums.