Do job-seekers benefit from contacts? : a direct test

Abstract

While it is intuitively plausible that using contacts in job search benefits a job-seeker, there is still both theoretical disagreement and inconclusive empirical evidence on why a job-seeker's social capital is associated with her labor-market outcomes (for reviews, see Mouw 2003, 2006). We take an important step toward identifying the source of this association by proposing a direct test for whether or not a job-seeker benefits from using her social networks. This direct test holds an important advantage over an indirect test proposed by Mouw (2003). By using a within-individual fixed-effects methodology, the direct test rules out most sources of between-individual heterogeneity (Yakubovich 2005). Therefore, its results are not influenced by the quality of the measures used to assess a job-seeker's social capital. Using unique data on university graduates' successful and unsuccessful job-searches, we show that, for job-seekers who use contacts to search for jobs, that method leads to better labor-market outcomes than formal methods do. We conclude by discussing the implications of our findings for the literature on job search and social networks.