The Use of Informal Networks in Italian Labor Markets: Efficiency or Favoritisms?

Ponzo, Michela and Scoppa, Vincenzo (2008): The Use of Informal Networks in Italian Labor Markets: Efficiency or Favoritisms?

Abstract

A number of papers considers the use of informal networks (the help of relatives, friends and acquaintances) to find an employment as an efficient mechanism to match workers to jobs. However, evidence in Italy shows that informal networks tend to be used more in less productive jobs and less developed regions. We aim to show that informal networks – rather than being an efficient channel of information transmission – may interfere with a genuine process of selection of workers, favoring socially connected people in place of more talented workers. Using the Bank of Italy Survey on Household Income and Wealth (SHIW) we estimate with a Probit model the determinants of the probability of using informal networks. We find that informal networks tend to be used by low educated individuals, in low productivity jobs, in high unemployment areas, where opportunistic behavior are widespread and in jobs paying a wage rent. We offer a stripped-down model of nepotism to explain theoretically these findings.

• Item Type: MPRA Paper
• Language: English
• Keywords: Keywords: Informal Networks, Favoritism; Nepotism; Italian Labour Markets
• Subjects: D - Microeconomics > D7 - Analysis of Collective Decision-Making > D73 - Bureaucracy ; Administrative Processes in Public Organizations ; Corruption; J - Labor and Demographic Economics > J3 - Wages, Compensation, and Labor Costs > J31 - Wage Level and Structure ; Wage Differentials; J - Labor and Demographic Economics > J7 - Labor Discrimination > J71 - Discrimination; M - Business Administration and Business Economics ; Marketing ; Accounting ; Personnel Economics > M5 - Personnel Economics > M51 - Firm Employment Decisions ; Promotions; J - Labor and Demographic Economics > J2 - Demand and Supply of Labor > J24 - Human Capital ; Skills ; Occupational Choice ; Labor Productivity

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