The Effect of Local Social Networks on Employees’ Motivation: Evidence from China

Using the research method of quantile regression, this paper empirically studies the impact of local social networks on the motivation system of employees in China. Empirical results show that closely connected local social networks can strengthen the bargaining power of employees. Specifically, closely connected local social networks can increase employees’ salaries, and the effect is more significant for employees with higher incomes. In addition, closely connected local social networks can also reduce employees’ pay-performance sensitivity, thus lowering the uncertainty of income. These effects can be more significant in firms with non-local chairmen, non-state-owned enterprises (Non-SOEs), and firms facing mild market competition. Besides, closely connected local social networks can also narrow the pay gap between senior executives and employees inside the firm. The research sheds light on the local social network’s positive effect on narrowing the pay gap and the negative effect of interest conflict it caused.