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

The article supplements the traditional economic line of reasoning with an economic sociological account of the transition from unemployment to employment. The lack of full information is recognised by economic theory while the focus on network within the tradition of economic sociology has not been adopted. The article argues that the importance of network actually might be very well understood within recent economic theories that emphasise the lack of full information. The empirical evidence for the importance of network both for employed and unemployed is provided by analysing a best case for formal recruitment. A number of factors make it likely that the recruitment processes in Denmark are less informal and dependent on network than in most other countries. However, based on a comprehensive survey material it is shown that employers to a large extent announce vacancies through informal network and that recommendations strongly affect employment chances. It is also shown that employed and unemployed are differently embedded in networks and despite intensive use of active labour market policy the unemployed are still dependent on their network. Therefore it is argued that lack of contacts might be an important part of the vicious circles of unemployment. Finally, the article analyse the importance of network versus the importance of economic incentives. The result supports the thesis that economic sociology provides a better account of the transition from unemployment to employment than the neo-classic theory.