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This study identifies three groups of job seekers in terms of the channels used to search for jobs: the formal channel involving only official procedures to obtain a job, the informal channel using only social contacts to obtain a job, and the joint channel leveraging both social contacts and official procedures. The analysis of a national sample survey of China shows that joint channel users, due to their relatively higher level of social capital, not only make more job search attempts but also obtain higher income than formal channel users. Meanwhile, joint channel users, because of their relative advantages in both human capital and social capital, not only make more job attempts but also obtain higher income than informal channel users. The two comparisons offer a new strategy to test the causal role social capital plays in labour market success, regardless of whether social capital is exogenous or endogenous to human capital.
Conclusions and discussion
The literature has identified two sources of endogeneity, each presenting a challenge to the causal effect of social capital on job search outcomes. One source of endogeneity is homophily, the tendency of job seekers to socialize with highly similar contacts. Previous studies have addressed this issue of endogeneity and demonstrated the existence of the causal effect of social capital on finding high-status and/or high-paying jobs. However, previous studies have rarely discussed the other source of endogeneity, reservation wage, which is unobservable in an individual’s job search process. The endogenous challenge imposed by reservation wage could have directly been solved had data sets with complete job-history information been available. Unfortunately, currently available job search surveys collect data only about successful job acquisition, and do not contain any information about rejected wage offers. Based on data with truncated wage information, we have developed an innovative strategy to establish the causal relationship between contact use and reservation wage. This strategy is based on the recognition of three groups of job seekers: Users of the formal channel, users of the informal channel, and users of both the formal and informal channels