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Limited network connections and the distribution of wages
It is well-known that 50% or more of all jobs are obtained through informal channels i.e. connections to family or friends. As well, statistical studies show that observable individual factors account for only about 50% of the very wide variation in earnings. We seek to explain these two facts by assuming that the linking of workers and firms is mediated by limited network connections. The model implies that essentially similar workers can have markedly different wages and further that the inequality of wages is partly explained by variations in the sizes of workers' networks. Our results ...