The Use of Informal Networks in Italy: Efficiency or Favoritism?

Ponzo, Michela and Scoppa, Vincenzo (2009): The Use of Informal Networks in Italy: Efficiency or Favoritism?

Abstract

A large body of literature considers the advantages of using informal networks to match workers to jobs. However, family ties may interfere with a genuine process of worker selection, favoring people with connections over more talented workers. We offer a simple model of favoritism to explain these risks and show firms’ trade-off in using informal channels. We then investigate empirically the determinants and consequences of using informal networks in Italy by using the Bank of Italy Survey. We find that informal networks tend to be used by low educated individuals, in small firms, in low productivity jobs and in less developed regions. Finally, we show that informal networks have a negative impact on wages, controlling for individual and firm characteristics.

• Item Type: MPRA Paper
• Language: English
• Keywords: Informal Networks, Favoritism; Nepotism; Earnings functions; Survey of Household Income and Wealth (SHIW)
• Subjects: D - Microeconomics > D7 - Analysis of Collective Decision-Making > D73 - Bureaucracy ; Administrative Processes in Public Organizations ; Corruption; 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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