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Social Networks and Economic Applications Essay

Social interactions are responsible for the influences in peoples’ beliefs, behaviors, and decisions. There are several examples of how social networks influence general economics and the modes of passing information. Social networks are also responsible for arbitrary decisions regarding hobbies, education, criminal activities, and careers.

Several scholars have examined how social networks influence and shape economic outcomes. In a chapter titled “The Ethnic Economy”, Smelser and Swedberg explore the role of ethnic groupings in determining economic outcomes.

In their article, the authors address the dominance of some ethnic groups around the world such as Jews, Gypsies, Armenians, and Sikhs. The chapter appears in a book titled “The Handbook of Economic Sociology”.

Another scholarly article that addresses social networks and the economy is the one that is authored by Michael Aguilera and Douglas Massey. The article is titled “Social Capital and the Wages of Mexican Migrants: New Hypotheses and Tests” and it is a case study that focuses on the plight of Mexican migrant workers.

Both of these scholarly efforts address various aspects of social networks and economic prospects. Nevertheless, both articles argue that social networks can easily be applied in modern economics. This paper explores this hypothesis whilst focusing on claims that have been made by the two articles.

Both articles address various aspects of social economics. The article by Aguilera and Massey examines how social capital influences the workers’ wages (Aguilera & Massey, 2003). Capital can be classified in accordance with several factors including financial, social, human, cultural, and physical aspects.

Furthermore, there is need to explore how these factors translate into economic gains. The social network that is addressed by Aguilera and Massey involves familial and cultural ties that prompt Mexican migrant workers to form informal labor arrangements.

The authors continue by exploring how these social networks are transformed into economic gain. Social networks in labor markets serve a list of purposes for both workers and their employers. All job-hunting efforts including executive and menial jobs are influenced by social networks.

Most workers depend on their social contacts when they are looking for available job opportunities. According to Aguilera and Massey, migrant workers who have solid social networks are likely to obtain better-paying jobs than the ones who lack reliable familial and friendship groupings.

The translation from immigrant social networks to economic outcomes has been reiterated in Smelser and Swedberg’s handbook. According to the two authors, immigrant and ethnic minorities can easily build ethnic ownerships around certain aspects of the economies.

However, the institution of immigrant and minority social networks goes beyond labor capital because it also encompasses financial capital. For instance, small business owners who belong to apt ethnic circles can easily obtain credit and other business facilities from their kinsmen.

In addition, it is important to note that small businesses are rarely financed by the major financial institutions. Nevertheless, the effects of social networks that involve immigrants and ethnic minorities only apply to groups that have had the capacity to build their internal resources (Smelser & Swedberg, 2010).

The same predicament is faced by Mexican migrants because they have to establish themselves in certain labor-markets before their networks can bear economic benefits.

Without initial resources, it is hard for social networks to obtain economic turnovers. Consequently, there is need for researchers to explore this initial aspect of social networks.

Both articles address the issue of exploitation in relation to social networks. According to Smelser and Swedberg, exploitation is common among ethnic social networks.

For instance, the authors of this article give an example of “small ethnic ownerships that thrive on the labor of their owners or unpaid family members” (Smelser & Swedberg, 2010). Consequently, the welfare of labor providers in small ethnic circles is often neglected.

In addition, the wage levels within ethnic or family-centered businesses are often below the recommended amounts. The article by Smelser and Swedberg compares the exploitative labor practices in ethnic circles with Marxist-style exploitation.

Another aspect of exploitation that is addressed by Smelser and Swedberg involves the economic welfare of minority owned businesses. Research indicates that most of the individuals who operate and work in ethnic-owned businesses earn less money than the individuals who are employed in mainstream businesses.

Consequently, there are concerns that ethnic-owned businesses are only able to survive because they have a ready source of cheap labor. Social networks are not only a source of exploitation but they are also able to solve various economic issues.

For instance, Smelser and Swedberg recognize that ethnic-owned businesses are able to solve the problem of unemployment and promote social cohesion. Job creation and increased social cohesion promote economic growth especially in isolated areas.

The other article by Aguilera and Massey points out cases of exploitation among the unregistered portion of the immigrant population. According to this article, undocumented migrants are less likely to secure formal employment (Aguilera & Massey, 2003).

Formal employment has several benefits including regulation by the government and the workers’ ability to obtain higher wages. For instance, cases of exploitation are minimal in formal employment. On the other hand, informal employers are able to escape several aspects of regulation and they are likely to exploit their employees.

Consequently, it is clear that there is a big difference between the small network-segments within a bigger social network. For example, the economic benefits that are accrued by documented migrant workers are quite different from the ones that are passed on to legal migrants.

There are intricate aspects of social-capital within social networks. For instance, Aguilera and Massey explore the social-variables within a social network including friendship ties, near-family connection, and far-family arrangements.

In their evaluation, the two authors found that social capital is highest when near family ties are involved and it is lowest where far-family ties are the main social connectors. On the other hand, Smelser and Swedberg point out that the institution of ethnic ownership is under threat from various quarters.

The entrepreneurial spirit of immigrants and minority ethnic groups has been challenged by both Marxists and capitalists. Most people are of the view that globalization has made the social networks that are created by immigrants and minority groups redundant.

Another group of critics does not believe that the ‘ethnic economy’ plays any significant economic or social role.

Social networks are a creation of various human factors such as immigration and ethnicity. On the other hand, it takes time for social resources to be harnessed before they can be translated into financial gain.

Smelser and Swedberg address the social networks that are created by immigrant and minority populations while Aguilera and Massey focus on Mexican migrant workers. Both articles outline several applications of social networks in relation to economic outcomes.


Aguilera, M. B., & Massey, D. S. (2003). Social capital and the wages of Mexican migrants: New hypotheses and tests. Social forces, 82(2), 671-701.

Smelser, N. J., & Swedberg, R. (2010). The handbook of economic sociology. Princeton: Princeton university press.

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1. IvyPanda. "Social Networks and Economic Applications." June 21, 2019. https://ivypanda.com/essays/social-networks-and-economic-applications/.


IvyPanda. "Social Networks and Economic Applications." June 21, 2019. https://ivypanda.com/essays/social-networks-and-economic-applications/.


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IvyPanda. (2019) 'Social Networks and Economic Applications'. 21 June.

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