How social networks shape local labour markets: Evidence from Ethiopia

Policy brief 7 Jan 2019 Cities

Authors

In Addis Ababa, a large proportion of young people find temporary and informal jobs with the help of their social contacts – people who often live in the same neighbourhood as them.
This study examines how the social networks in urban neighbourhoods shape the structure of the local labour markets and what the implications for productivity are, with the help of a field experiment.
The findings of this study suggest that young people who are more central in their social networks are more likely to find jobs, whereas individuals with few network connections also remain excluded from work opportunities. However, more central individuals are not more productive on the job.
Job referrals in local labour markets are driven by a strong norm of reciprocity, which disadvantages individuals without many social ties. This norm has negative implications for productivity on the job.
These factors put socially peripheral individuals at a disadvantage. However, when these people are given a job referral opportunity in the context of the experiment, they strategically make new and permanent connections to other individuals.