IZA DP No. 9852: Labor Market Networks and Recovery from Mass Layoffs Before, During, and After the Great Recession
We measure the impact of labor market referral networks defined by residential neighborhoods on re-employment following mass layoffs. Because networks can only be effective when hiring is occurring, we focus on a measure of the strength of the labor market network that includes not only the number of employed neighbors of a laid off worker, but also the gross hiring rate at that person's neighbors' workplaces. We provide additional evidence from two alternative measures of network strength that try to disentangle the mechanism by which networks operate – either by conveying information to job seekers about vacancies or conveying information to hiring employers about potential hires. Our evidence indicates that stronger local labor market networks are linked not just to more rapid re-employment following mass layoffs but to re-employment specifically at neighbors' employers. We also find evidence suggesting that this effect is stronger via network connections that convey information to job seekers about vacancies. Finally, we find evidence that the effects of networks for displaced workers declined during the Great Recession relative to prior or subsequent years.