Networks versus Economic Incentives: an economic sociological account of the transition from unemployment to employment

The article analyses the neglected relationship between networks and unemployment. It challenges the neo-classic understanding of the transition from unemployment to employment and elaborates the line of reasoning within economic sociology. Based on theories of information problems at the labour market it is argued that networks are of special importance for unemployed. At the same time unemployed is likely to lose network, which starts a vicious circle. Due to a formalised labour market, high integration of long-term unemployed and a number of other factors Denmark comes close to a worst case for this line of reasoning. However, based on comprehensive surveys it is shown that employers do hire through informal channels, do use referrals, and are suspicious when hiring unemployed. It is also shown that unemployed do lose network, especially so-called occupational ties, which significantly reduces their chances of employment.