Density, Social Networks and Job Search Methods: Theory and Application to Egypt

The aim of this Paper is to study the impact of the size and the quality of social networks on the probability of finding a job. We first develop a theoretical model in which individuals are embedded within a network of social relationships. Workers can obtain information about jobs either directly, or indirectly, via an employed friend belonging to their social network. We show that, conditional on being employed, the probability of finding a job through social networks - relative to other search methods - increases and is concave with the size of the network. There is, however, a critical size of the network above which this probability decreases. We also show that the probability of finding a job through friends and relatives decreases with the local unemployment rate. We test empirically these theoretical findings for Egypt using the 1998 Labor Market Survey. The empirical evidence supports the predictions of our theoretical model.