Informal job search method and labour market outcomes: evidence from urban Chinese workers

ABSTRACT

Using a representative sample of Chinese urban employees, we empirically study the impact of the utilization of informal job search through social networks on wage. We find a premium of initial wage associated with job referral, but the wage premium diminishes over tenure. We also find that the effect of job referral on initial wage reduces when human capital plays a more important role, or the recruitment process and the economic system are more market-oriented. Our findings are consistent with the learning theory that job referral can reduce information asymmetry between employees and employers at the beginning they meet, but the informational advantage diminishes over time as the employers know non-referred workers gradually.

KEYWORDS:

• Informal job search
• wage
• Chinese labour market
• information asymmetry

Disclosure statement

No potential conflict of interest was reported by the author.

Notes

¹ We define a full-time job as working for more than 6 hours per day and more than 20 days per month on average. Sample selection bias may not constitute a material problem. In the survey data of CHIP 2013, the number of labour force ageing between 15 and 64 after dropping full-time students, long-term sick leave employees, and maternity leave females is about 11,000, among which more than 9000 people are employed by employers in 2013, accounting for 85% of the laborforce.

² In this context, family members are immediate or nuclear family members, such as parents, spouses, sons, and daughters. Relatives are extended family members.

³ $sexperience$ is calculated by age minus six minus years of schooling, supposing one starts schooling at six.

⁴ Job-related dummies are displayed in the Appendix Table A2.

⁵ Education information about the employees in each industry is not reported in China Labour Statistics Yearbook before 2003, thus we use the information in 2003 to approximate the general education level for each industry before 2003. The high-skilled industries that frequently rank top third in terms of the share of employees holding college degree or above include Education, Finance, Scientific Research and Technical Services, Health and Social Service, etc. Appendix Table A1 lists the high-skilled industries and low-skilled industries in 2013.

⁶ When the household registration of the worker is not local, they may have fewer contacts with local people and thus less chance of using their networks to find employment.