How Do Social Networks Contribute to Wage Inequality? Insights from an Agent-Based Analysis

Abstract

Based on a closed agent-based macroeconomic simulation model (Eurace@Unibi), this article analyzes whether the density of social networks influences via referrals the residual wage inequality in different skill groups. It is shown that an increase in network density leads to a polarization of firms and a concentration of workers with high specific skills at firms with high productivities (and wages) thereby enlarging within group wage inequality, but not between group wage inequality.