Impact of Social Networks on the Labor Market Inequalities and School-to-Work Transitions

Abstract

Countries invest in education systems in order to increase the quality of their human capital. In this context, it is seen that especially after the expansion of the higher education systems, countries try to increase higher education graduation rates in order to improve the quality of human resources in the labor market. The ultimate goal of these efforts is to facilitate the transitions from school-to-work, and to increase social welfare by meeting the human resources needs of the labor market. The facilitation of school-to-work transitions has a direct impact on youth unemployment. School-to-work transitions are influenced not only by the quality of education from primary to higher education but also by the dynamics of the labor market. Social network analysis can provide important insights into this dynamics, and in doing so reveal that there are indeed many factors that play a key role in determining who gets a job and why, including, first and foremost, social contacts. An analysis of job search channels reveals that partners, friends, and relatives are those social contacts that are most decisive for employment outcomes. Research reveals that employers use social-contact-based reference channels much more frequently than formal channels for recruitment. Thus, employers frequently use such reference channels in recruitment. It has also been shown that the use of social-contact channels reduces employers' costs of finding suitable employees and increases productivity since employees hired through these channels also stay longer in their firms. We here explore the full potential of social network analysis to better our understanding of school-to-work transitions, to reveal in no uncertain terms the importance of social contacts, and to show how these insights can be leveraged to level the labor market for all involved. An important take-home message is that the labor market dynamics is strongly affected by the Matthew effect, such that the inequalities and the gaps between opportunities only grow and widen as the underlying social networks evolve. It is therefore important to mitigate these effects well before school-to-work transitions come into play, namely during the education. In particular, we assert that minimizing the inequalities during education should effectively mitigate the uneven impact of social networks on school-to-work transitions.