The relative productivity of social networks versus formal job-search methods

This paper aims to assess the relative productivity of contacting friends/relatives versus using a formal job-search method for the unemployed youth. Moreover, we examine how it varies across individuals with different education levels, and over the business cycle. Finally, we also analyse whether the higher usage of job networks that was observed during and after the Great Recession generated strong enough congestion effects that hampered their relative productivity. Our results suggest that using job connections instead of formal methods increases the reemployment hazard of young unemployed jobseekers. In addition, this effect does not seem to differ by education level except during the Great Recession, when the low educated had a higher reemployment hazard than the highly-educated. For the low educated unemployed youth, the economic cycle does not seem to affect the effectiveness of using friends and relatives. This contrasts with the decrease in its relative productivity that their highly-educated counterparts seem to have experienced during the Great Recession. Finally, and contrary to what the theoretical literature suggests, we did not find evidence of strong congestion effects; perhaps because the usage of social networks was below its point of saturation.