Friends’ networks and transitions into employment

Abstract

We empirically investigate the effect of social interactions on labour market outcomes using a direct measure of social contacts based on information about individual’s best friends and their characteristics. We examine the effect of the number of employed friends on the probability to enter into employment. We find that having employed friends increases the probability to find a job. These findings are robust to specifications that address the endogeneity of friends’ employment status that may be induced by correlation with unobserved individual attributes. Investigating the mechanisms behind these effects, we find evidence of higher wages for those with more employed friends, which is consistent with networks acting as information transmission devices.