Working Paper Series
IFAU - Institute for Evaluation of Labour Market and Education Policy
The causal impact of social Connections on firms' outcomes
(), Lena Hensvik
(), Francis Kramarz
() and Oskar Nordström Skans
Abstract: The paper studies how social connections affect firm-level
hiring decisions and performance. We characterize the social connections of
firms’ employees using register data and for causal identification we use
job displacements, which create directed positive shocks towards connected
firms by increasing these firms’ available supply of connected labor. We
ascertain that our results are fully driven by these directed supply
shocks. Our results show that firms appear to prefer to hire employed
workers to whom they are connected over unconnected or unemployed workers.
Employed and connected workers mostly go to high-productivity firms,
whereas unemployed and unconnected workers tend to go to low-productivity
firms. Strong connections – family, recent, durable, formed in small
groups, between socially similar agents – matter the most. A displacement
shock causes connected firms, in particular low-productive ones, to hire
more of the connected workers, while leaving unconnected hires and
separations essentially unaffected. Increases in the supply of connected
labor, therefore, cause the creation of additional jobs at the firm level.
By using these shocks, we can also show that hiring connected workers has a
positive causal impact on firm performance. Our results are consistent with
a stylized framework where connections reduce hiring frictions and where
the firms’ ability to hire connected workers is a function of these
workers’ outside options.
Keywords: networks; job search; job displacement; job creation; (follow links to similar papers)
JEL-Codes: J23; J30; J60; (follow links to similar papers)
58 pages, June 9, 2017
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