A network theory of inter-firm labor flows

Once we had evidence of the importance of labour flow networks, we wanted to give them a more formal mathematical treatment with standard tools from stochastic processes on networks. This paper develops a model that is analytically tractable and that allows to estimate a new highly granular measure: firm-specific unemployment.

Using detailed administrative microdata for two countries, we build a modelling framework that yields new explanations for the origin of firm sizes, the firm contributions to unemployment, and the job-to-job mobility of workers between firms. Firms are organised as nodes in networks where connections represent low mobility barriers for workers. These labor flow networks are determined empirically, and serve as the substrate in which workers transition between jobs. We show that highly skewed firm size distributions are predicted from the connectivity of firms. Further, our model permits the reconceptualisation of unemployment as a local network phenomenon related to both a notion of firm-specific unemployment and the network vicinity of each firm. We find that firm-specific unemployment has a highly skewed distribution. In coupling the study of job mobility and firm dynamics the model provides a new analytical tool for industrial organisation and makes it possible to synthesise more targeted policies managing job mobility.