Favor, Matching, and Structural Holes: The Network Effect on Wage Income in
How do social networks matter for labor market outcomes? Recent critiques identify design deficiencies of previous empirical studies that used probably misguided measures of tie strength and contact characteristics as predictors of the network effect on wage income. Building on network theories and the research of transitional China, in this paper we propose three causal mechanisms--favor, matching, and structural holes--by which network contacts transmit information and influence that in turn result in higher wage income of Chinese workers who used contacts to find jobs than those who did not. In a 1999 random sample of the general population of five Chinese cities (N=4350), 59% of the respondents found their current or last jobs through social contacts who provided job information (32%) or more concrete favors (38%), or both (21%). The concrete favors include delivering applications, face-to-face recommendations, setting up informal interviews, and the like, and they have an immediate impact on a higher initial salary for favor-receiving workers. In addition, these favors and the information transmitted both have a long-term, positive impact on wage income by ways of assigning the workers into jobs that better match worker qualifications to the job requirements of skill training and work experience, and into positions that give the occupants a greater diversity of organizational and market connections to earnings opportunities. The significance of these network effects is discussed within the institutional context of China and beyond.