The Interaction between Family Networks and Labor Markets: Evidence from West Africa

In developed countries, formal institutions such as government employment offices, newspapers, and private agencies offer an effective job-seeking channel for unemployed individuals. In developing countries, these institutions often fail to deliver market information efficiently, forcing jobseekers to use unofficial sources when looking for employment opportunities. In particular, people tend to rely on social networks, such as family or friends, when formal institutions fail. A recent study provides new evidence on the extent to which labor market outcomes in developing countries are fundamentally affected by these social interactions. Christophe Nordman and Laure Pasquier-Doumer analyze how family networks, in particular, influence the employment trajectory of workers in Ouagadougou, the capital of the West African country Burkina Faso. The researchers find that family networks significantly affect the transitions of individuals from unemployment to employment, and from self-employment to wage employment.

Using data from a 2009 survey of 2,000 households in Ouagadougou, the authors conducted an analysis of family networks considering three factors: structure, strength, and resources. To describe the structure, or family size, the researchers used a worker’s number of siblings. The strength of ties were characterized by how far the worker’s siblings live from Ouagadougou, the geographical distance from the worker’s residence in Ouagadougou to his or her locality of origin, and whether or not the worker visited a family member at least once in the past week. The resources of a family network are characterized by the siblings’ average number of years of schooling, and whether these siblings work in the public sector. This last variable is relevant because the authors find that, in Ouagadougou, unemployed individuals with siblings working in the public sector find jobs more quickly. They also control for demographics (including income and education) and the sector in which each job seeker was looking for work.

The authors find a negative relationship between the strength of family ties and the probability that an unemployed individual finds a job. In Ouagadougou, contrary to developed countries, individuals are more likely to find a job when they are more isolated from their family networks. This contradiction may be explained by an understanding that families in Ouagadougou act as a safety net in the case of unemployment. If a family member is unemployed, it is likely that that person’s relatives will take him or her in and provide for any needs. With family support, unemployed individuals feel less urgency to find a job. Individuals who live further from their families, and therefore further from their safety nets, are forced to find a job more quickly to provide for themselves. The resources embedded in family networks also have significant effects on the employment transition. On the one hand, the authors discover that siblings’ average educational levels have a negative effect on the probability that unemployed individuals find a job. On the other hand, those individuals who had siblings working in the public sector found jobs more quickly than those who did not.

Researchers also find that self-employed individuals who interact more frequently with their family networks are more likely to continue working independently, rather than change to wage employment. Consequently, individuals with weaker family ties are more likely to transition from self-employment to wage employment. The authors find that less intensive family ties—due to larger geographical distance between individuals and their families—forced workers to build social networks and develop stronger interpersonal skills. As a result, these individuals may have had better access to information on wage employment opportunities, which creates more opportunities to transition from self-employment to wage employment.

Even though this study is specific to the unique economy of Burkina Faso, the evidence in other developing countries on the lack of efficiency in formal job-seeking channels suggests that the authors’ findings may apply to emerging countries in general. The impact of family networks on the employment trajectories of workers may shed light on how to improve labor market outcomes in developing countries. Policymakers looking to develop more inclusive labor markets should consider the issue of imperfect information and either implement technological advancements to reduce information gaps or promote policies that enable individuals to build up stronger social networks.

Article Source: Nordman, Christophe J. and Laure Pasquier-Doumer, “Transitions in a West African Labour Market: The Role of Family Networks.” Journal of Behavioral and Experimental Economics. February 2015

Featured Photo: cc/(James Ainooson)