Job Networks Before, During, and After the Great Recession

Neighborhood networks, enduring assets for job-seekers, were weakened substantially.

Most people who have searched for a job know that it is often useful to have a little help from contacts such as friends, acquaintances, and former colleagues. Where a job-searcher lives may be an important determinant of this contact network.

In Labor Market Networks and Recovery from Mass Layoffs Before, During, and After the Great Recession (NBER Working Paper No. 21262), Judith K. Hellerstein, Mark J. Kutzbach, and David Neumark confirm the enduring power of residential neighborhood networks for people searching for work, but they also find that such networks were strained and weakened substantially during and after the Great Recession.

We know that during and after recessions, it can take a long time for displaced workers to find new jobs. And past research suggests that better-connected workers have an easier time finding jobs and receive higher wages than those who aren't tapped into networks. This study explores how the effects of networks in connecting workers to jobs changed during the Great Recession.

The authors examine the strength of neighborhood networks just before, during, and after the Great Recession, which officially lasted from December 2007 through June 2009. Such networks may provide job seekers with tips about job openings or employers with referrals about potential hires. Using data from the U.S. Bureau of the Census Longitudinal Employer-Household Dynamics (LEHD), the core of which is information on workers and employers from state records on unemployment insurance covered jobs, the authors zero in on workers living in specific neighborhoods (census tracts), to determine the jobs, wages and salaries, layoff and rehiring dates, and employers of those workers and their neighbors.

Using data covering millions of workers who lost jobs in mass layoffs from 2005 to 2011, the authors focus on cuts of at least 30 percent of a firm's total workforce. For each of the mass layoffs, the authors compare the post-layoff re-employment of displaced workers who live in highly networked neighborhoods to those in less networked neighborhoods. They use two measures to analyze potential residential network effects: a "broad" look at how job seekers might be helped by tips from neighbors about job vacancies, and a "deep" look at how companies might use referrals from current workers to hire neighbors.

For the workers who experienced mass layoffs, they find that about 63 percent of those who lost a job in 2005 or 2006, before the recession, were re-employed within a three-month period, but only 47 percent of those laid off in 2009 were re-employed within a similar time period. Indeed, only 65 percent of job-losers in 2009 found re-employment within two years.

They also find that those who lost their jobs in 2005 and had a median level of neighborhood network connectivity to job vacancies had a job-finding rate in the first three months after job loss that was 6.3 percentage points higher than if they had no network contacts, a 10 percent boost. In contrast, those who were laid off in 2009 and who lived in a neighborhood with a typical network had a job-finding rate over those three months that was only 3.1 percentage points higher than those without a network to connect them to jobs. This represented just a 6.5 percent increase over what would have happened in a non-networked neighborhood.

The authors found similar but less pronounced trends in the network measure that reflects the extent to which companies act on referrals from their own workers.

Significantly, the authors discovered that residential neighborhood networks are especially important to lower-income displaced workers. Labor markets are more local for this group, and hence network connections to neighbors are likely to be most productive.

The research concludes that residential neighborhood networks that connect job seekers to job vacancies are important for displaced workers searching for jobs, but that the strength and productivity of these networks are diminished when confronted with severe economic events such as the Great Recession.

—Jay Fitzgerald