Referrals, intergenerational mobility and human capital accumulation

Abstract:

The aim of this paper is to investigate the interaction between two channels of intergenerational transmission of inequalities: parental income and networks. For this purpose, job referrals are introduced in an overlapping generations model of human capital accumulation with borrowing constraints. Although the exploitation of workers' networks through referrals can decrease the costs borne by firms and workers in the matching process, they also widen the opportunity gap between workers having parents with different educational levels. It is shown that when market inequalities are high, segregation effects may overcome the gains provided in the labour market by referrals. Even though referrals are exploited only in the educated segment of the labour market, the reduction of frictional costs may coexist with an overall negative effect on human capital accumulation.