Do Social Networks Affect the Labor Market?

Social networks, also known as “job-referral” networks, make labor markets more effective. They help employees get higher-paying jobs. However, they are also the reason for inequality between various groups of people based on their race, ethnicity and socio-economic status.

Now, the first question you may have is, “what is the labor market, and how is it affected by social networks?”. We define the labor market as the supply of and the demand for labor, in which employees provide supply and employers offer demand. It is the place where employees and employers interact with each other.

But what’s the role of social media networks in the labor market? Let’s dive deeper into the details and find the answer to this question!

Social similarity

You surely noticed that people usually socialize with the ones who are similar to themselves in some way. That can actually have both good and bad effects on the job hiring process

Referrals may have a screening role. That’s mainly because good employees know other good employees. However, if social media networks are stratified by ethnicity or race, they may be the reason for inequality.

Family networks

Do children usually work at the same company as one of their parents when entering the labor market? Although we do not have direct evidence on referral, it is evident that when a child works at the same company as their parents, the latter takes part in helping her/him get the job. In this case, referred workers usually get higher starting salaries. However, in some other cases, they start working with lower wages. How does this happen? The referral may be a search method of last resort for employees with poor labor market opportunities for these employees.

Co-worker networks

Co-worker networks

Do you have a colleague who found their job due to their former co-workers, or perhaps you’re one of them? Due to social networks, some people start working at the same company as their social contacts. 

The above-mentioned has become a common practice in the labor market. Current employees pass on information about job opportunities to their friends, who later become their colleagues.

Ethnic networks

Recent studies show that referred workers of ethnic networks have longer-lasting jobs and higher starting salaries. However, some companies favor ethnic similarity and choose employees who belong to their ethnicity or are somehow related. This approach creates inequality and is not a professional one. Each candidate should be viewed equally regardless of their age, race and social status.

Neighborhood networks

Neighborhood networks in labor market

According to the survey carried out in the US city of Boston, workers who live in the same block are three times more likely to work at the same firm than those living in the same neighborhood but on various blocks. Moreover, the impact is even more substantial for the same gender, race and workers with a lower level of education!

The results of the survey come to prove that social networks can help people find their job. So, where you live and who you know can affect where you work. The more people you know, the more chances to have a job at the company they work.

Better workers usually make the referrals. The employees who have better social networks will find a job with higher salary opportunities. 

The advantages and disadvantages of social networks

Having all the above-mentioned in mind, we have added advantages and disadvantages of social networks and their impact on the labor market. Here are a few of them:

Advantages of social networks

  • They improve labor market efficiency by providing more information to job seekers and employers.
  • They help job seekers find relevant jobs, and companies find available skillful employees.
  • According to recent surveys, referred workers often have higher salaries and remain on the job longer.
  • Employees have the chance to find higher-paying jobs in the labor market with the help of social networks.

Disadvantages of social networks

  • They can cause inequality between groups with limited social contact.
  • Social network use is bound with local labor market conditions.
  • Referrals are a search method for employees who have limited outside options.
  • They may cause inequality between races, ages, ethnicities and people who have various socioeconomic statuses.

We can conclude that social networks affect the job market both negatively and positively. That is because social networks or referrals are seen as channels of information between the employer and employee.  

Even though there may be contrasting opinions about social networks, two things are certain: special networks improve labor market efficiency and affect the labor market’s outcomes. 

Due to online job platforms, the use of social networks in job search has increased. That means the effects of social media platforms are immense. They may serve as tools to build better social networks that may help them in their job search. Sometimes, the more active you are on social media platforms, the more chances you have to get the desired job. New technologies do suggest new mechanisms to address the information problems usually solved by using referrals.