Bank of Lithuania
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No 95
2021-11-23

Coworker Networks and the Labor Market Outcomes of Displaced Workers: Evidence from Portugal

  • Abstract

    The use of social contacts in the labor market is widespread. This paper investigates the impact of personal connections on hiring probabilities and re-employment outcomes of displaced workers in Portugal. We rely on rich matched employer-employee data to define personal connections that arise from interactions at the workplace. Our empirical strategy exploits firm closures to select workers who are exogenously forced to search for a new job and leverages variation across displaced workers with direct connections to prospective employers. The hiring analysis indicates that displaced workers with a direct link to a firm through a former coworker are roughly three times more likely to be hired compared to workers displaced from the same closing event who lack such a tie. However, we find that the effect varies according to the type of connection as well as firms’ similarity. Finally, we show that successful displaced workers with a connection in the hiring firm have higher entry-level wages and enjoy greater job security although these advantages disappear over time.

    Keywords: Job Displacement, Coworker Networks, Re-Employment.

    JEL codes: J23, J63, L14.

    The views expressed are those of the author(s) and do not necessarily represent those of the Bank of Lithuania.