Job creation policies need to reflect role of networks

It’s often said it’s “not what you know, but who you know” that counts when getting a job. But is there much truth to this conventional wisdom?

On the face of it this seems to be a common experience. Many of us know (or are) someone who found a job because they knew the right person. Large companies such as LinkedIn have made it their business to connect you to your “professional network” with the aim of improving your employability.

Ibec research shows 87 per cent of employers use referrals by staff to fill non-graduate positions and it is seen by the majority of businesses who use this method as very effective. Indeed, international surveys show that about half of people found out about their current job from someone they know, while less than one in 10 found out from private or public employment agencies.

The EU’s 2012 European Quality of Life Survey showed that 45 per cent of Irish people indicated they would first ask people they knew for help finding a job, compared to 38 per cent indicating they would go to public or private agencies. This is even more important for young people, with 57 per cent of those under 24 saying they would first turn to people they knew. The question remains, however, do these networks make any difference?

This topic has been the subject of much inquiry. International research has shown that individuals with access to “better” social networks may be able to use their connections to access opportunities and information which would otherwise be unattainable to them.

The most famous research on the subject, Mark Granovetter's The Strength of Weak Ties, suggests that it's not your close friends and family that matter when it comes to finding a job, but your "weak ties", in other words your acquaintances. Unlike people close to you, your acquaintances are likely to have access to information about jobs which you do not.

Statistical research* I conducted, using representative data on more than 2,000 Irish adults, showed that who you know does indeed make a substantial difference, although what you know matters too.

Serious implications
The study indicates that participation in social groups such as sports clubs, community organisations and other networks where you are likely to meet people outside your close friends and family, increases significantly your chances of finding a job.

These findings may seem obvious on the face of it, but they are not really reflected in the way in which the State currently assists jobseekers. This may have serious implications for fiscal policy given the fact that we are spending €1.2 billion a year on employment and training supports.

Understanding the way in which people use their social ties to gain information about jobs and use their social influence to gain a foothold in the labour market can help us design policy which serves jobseekers that little bit better and makes it easier for them to find work.

This is particularly important for jobseekers with little or no experience, for those who have been out of employment for a long time and for people applying for non-graduate roles. From a policy point of view, this research suggests that promoting workplace elements to education, skills and labour market activation programmes, such as work placements, will benefit jobseekers.

To some extent this is already happening, in schemes such as JobBridge or training schemes such as Skillnets and Fastrack to IT, where employers and government work together in training networks for employees and jobseekers alike may.

Not only are jobseekers more likely to meet the right people in a work-oriented environment, but crucially these networks also allow employers to communicate their skills needs to jobseekers more effectively. Schemes with these close labour market ties should be prioritised ahead of those without them.

The effectiveness of the State’s spending deserves serious evaluation, even when it reveals some uncomfortable truths. The vast majority of people who are unemployed want to work and job creation is improving. However, Ireland’s history in getting people back to work after downturns is poor. This was particularly true in the 1980s where large numbers of people were left unemployed needlessly.

The Government's Pathways to Work paper acknowledged this failure. However, in the recent past both the OECD and the ESRI have again shown that money the state spends on getting people back to work could be used more productively. This research suggests the same. We need to learn lessons from these insights to avoid repeating old mistakes.

Gerard Brady, an economist with IBEC, is the winner of the inaugural Miriam O'Hederman O'Brien prize, sponsored by the Foundation for Fiscal Studies.
*See http://iti.ms/1glZEOl for full paper

The Miriam Hederman O'Brien prize
The Miriam Hederman O'Brien prize is awarded by the Foundation for Fiscal Studies in association with The Irish Times to recognise outstanding original work from new contributors in the area of Irish fiscal policy. The aim of the prize is to promote the study and discussion of matters relating to fiscal, economic and social policy, particularly among new contributors to these fields, and to reward those who demonstrate exceptional research promise. The prize forms an important part of the foundation's overall objective of promoting more more widely the study and discussion of matters relating to fiscal, economic andsocial policy.