This chapter provides an overview of the role of social networks in the labor market. Both workers and firms report widespread use of social contacts in labor market search. The objective of the chapter is to survey various models for why firms and workers use social contacts, with a focus on empirical predictions. The main explanations explored include: search costs, imperfect information about worker productivity or match quality, and peer effects. The chapter then turns to summarizing the empirical evidence related to the existing theoretical predictions. The chapter concludes by highlighting holes in the existing literature and the need for additional empirical and theoretical work.
Labor Market Search With Imperfect Information and Learning
