In this paper we study mechanisms by which social networks transmit information in the labor market. In particular, we are interested in how displaced workers from firm closures benefit from their social contacts in finding new jobs. Our network definition focuses on work-related networks formed by past coworkers. The primary objective of this paper is to explore whether coworker networks relate general information about  job opportunities and search strategies or if they provide specific information in terms of job referrals to vacancies at their own workplace. To distinguish between these mechanisms, we adopt two different perspectives at the social network. From the job-seeker’s perspective we analyze how network characteristics impact the job finding rate and the wage in a new job. From the firms’ perspective we define a network of connected firms that are linked to the closing firm by the employment of past coworkers. We then ask whether connected firms are more likely to hire a displaced worker with a network link  to one of their incumbent employees. Our results, implemented on large-scale administrative records from Austria, indicate that employment status and firm types of former coworkers are crucial for successful job finding. Moreover, 25% of displaced workers find a new job in one of the connected firms and displaced workers with a link to the connected firm are three times more likely to be hired by this firm than other workers displaced at the same closing firm. The last results strongly suggests that information transmission in coworker networks works via job referrals.

Joint work with Peri Saygin and Michele Weynandt.