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We develop a model in which unemployed workers can pass along unwanted job information to other unemployed friends within social networks. Compared with the case in the absence of social networks, we first show in an economy where networks are equal in size that unemployment rate is lower. In terms of social welfare, social planner prefers workers becoming more selective than the decentralized equilibrium. When social networks differ in size, increasing the size difference is beneficial for unemployed workers with large networks but detrimental to those with small networks; in addition, the unemployment rate decreases with the size difference. However, because of the dilution effect, as the proportion of unemployed workers with large networks increases, it eventually results in losses for all unemployed workers, and the unemployment rate may follow a non-monotonic pattern.

Getting a Job through Unemployed Friends: A Social Network Perspective