Job search channels, neighborhood effects, and wages inequality in developing countries: The colombian case

© 2015 Institute of Developing Economies. This paper analyzes the relationship between social networks and the probability of finding a job. We explore geographic closeness as the social interaction to explain the job search function. Using data from Colombia in 2009, we calculate how neighborhoods have an effect on the channel used to find a job (social network versus no social network). In addition, we study how wage premium relates to using a social network in finding a job, exploring the inequality that can arise using a different job search method. Our results show that neighborhood affects the individual's job search method and that referred workers earn less at the bottom of the wage distribution with respect to non-referred workers. Colombia presents persistent high levels of informality and inequality with the existence of spatial clusters that impose important social and economic costs with strong informational asymmetries on the job market.