Social Capital and Finding a Job: Do Contacts Matter?

Does social capital affect labor market outcomes? The prevalent use of job contacts to find work suggests that who you know is an important means of getting a good job. Network theories of social capital argue that well-connected workers benefit because of the job information and influence they receive through their social ties. Although a number of studies have found a positive relationship between measures of social capital and wages and/or occupational prestige, little is known about the causal effect of social networks on labor market outcomes. Four data sets are used to reassess findings on the role of social capital in the labor market. A test of causality is proposed based on the argument that if social capital variables do have a causal effect on job outcomes, then workers with high levels of social capital should be more likely to use contacts to find work, all else being equal. Results suggest that much of the effect of social capital in the existing literature reflects the tendency for similar people to become friends rather than a causal effect of friends' characteristics on labor market outcomes.