Using a simple search model, with urn-ball derived matching function, this paper investigates the effect of firm owner’s and coworkers’ nativity on hiring patterns and wages. In the model, social networks reduce search frictions and wages are derived endogenously as a function of the efficiency of the social ties of current employees. As a result, individuals with more efficient connections tend to receive higher wages and lower unemployment rate. However, because this efficiency depends on matching with same-type owners and coworkers, there is also a differential effect among workers’ wages in the same firm. This analysis highlights the potential importance of social connections and social capital for understanding employment opportunities and wage differentials between these groups.
S. J. Curtis and J. T. Warner, “Matchmaker, Matchmaker: The Effect of Old Boy Networks on Job Match Quality, Earnings, and Tenure,” Journal of Labor Economics, Vol. 10, No. 3, 1992, pp. 306-330. doi:10.1086/298289
A. Calvo-Armengol and M. O. Jackson, “Networks in Labor Markets: Wage and Employment Dynamics and Inequality,” Journal of Economic Theory, Vol. 132, No. 1, 2007, pp. 27-46. doi:10.1016/j.jet.2005.07.007