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Information channels in labor markets: On the resilience of referral hiring

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Author Info
Casella, Alessandra
Hanaki, Nobuyuki

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Abstract

Economists and sociologists disagree over markets' potential to substitute for personal connections. We study a model of labor markets where social ties are stronger between similar individuals, and firms prefer to rely on personal referrals than to hire on the open market. Workers in the market can take a costly action that can signal their productivity. The paper asks whether signaling reduces the reliance on the network. We find that the network is remarkably resilient. Signaling is caught in two contradictory requirements: to be informative it must be expensive, but if it expensive it can be undercut by the network.

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Publisher Info
Article provided by Elsevier in its journal Journal of Economic Behavior & Organization.

Volume (Year): 66 (2008)
Issue (Month): 3-4 (June)
Pages: 492-513
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Handle: RePEc:eee:jeborg:v:66:y:2008:i:3-4:p:492-513

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Samuel Bentolila & Claudio Michelacci & Javier Suarez, 2004. "Social Contacts And Occupational Choice," Working Papers wp2004_06, CEMFI. [Downloadable!]
    Other versions:
  2. Luigi Pistaferri, 1999. "Informal Networks in the Italian Labor Market," Giornale degli Economisti, GDE (Giornale degli Economisti e Annali di Economia), Bocconi University, vol. 58(3-4), pages 355-375, December.
  3. Holzer, Harry J, 1988. "Search Method Use by Unemployed Youth," Journal of Labor Economics, University of Chicago Press, vol. 6(1), pages 1-20, January. [Downloadable!] (restricted)
    Other versions:
  4. Mortensen, Dale T. & Vishwanath, Tara, 1994. "Personal contacts and earnings : It is who you know!," Labour Economics, Elsevier, vol. 1(2), pages 187-201, March. [Downloadable!] (restricted)
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  5. Michele Pellizzari, 2004. "Do Friends and Relatives Really Help in Getting a Good Job?," CEP Discussion Papers dp0623, Centre for Economic Performance, LSE. [Downloadable!]
  6. Montgomery, James D, 1991. "Social Networks and Labor-Market Outcomes: Toward an Economic Analysis," American Economic Review, American Economic Association, vol. 81(5), pages 1407-18, December.
  7. Antoni Calvó-Armengol & Matthew O. Jackson, 2004. "The Effects of Social Networks on Employment and Inequality," American Economic Review, American Economic Association, vol. 94(3), pages 426-454, June. [Downloadable!]
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  8. Greif, Avner, 1993. "Contract Enforceability and Economic Institutions in Early Trade: the Maghribi Traders' Coalition," American Economic Review, American Economic Association, vol. 83(3), pages 525-48, June. [Downloadable!] (restricted)
  9. Kranton, Rachel E, 1996. "Reciprocal Exchange: A Self-Sustaining System," American Economic Review, American Economic Association, vol. 86(4), pages 830-51, September. [Downloadable!] (restricted)
  10. Saloner, Garth, 1985. "Old Boy Networks as Screening Mechanisms," Journal of Labor Economics, University of Chicago Press, vol. 3(3), pages 255-67, July. [Downloadable!] (restricted)
  11. Tassier, Troy & Menczer, Filippo, 2008. "Social network structure, segregation, and equality in a labor market with referral hiring," Journal of Economic Behavior & Organization, Elsevier, vol. 66(3-4), pages 514-528, June. [Downloadable!] (restricted)
  12. Yannis M. Ioannides & Linda Datcher Loury, 2004. "Job Information Networks, Neighborhood Effects, and Inequality," Journal of Economic Literature, American Economic Association, vol. 42(4), pages 1056-1093, December. [Downloadable!] (restricted)
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  13. Greif, Avner, 1994. "Cultural Beliefs and the Organization of Society: A Historical and Theoretical Reflection on Collectivist and Individualist Societies," Journal of Political Economy, University of Chicago Press, vol. 102(5), pages 912-50, October. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Alessandra Casella & Nobuyuki Hanaki, 2006. "Why Personal Ties Cannot Be Bought," American Economic Review, American Economic Association, vol. 96(2), pages 261-264, May. [Downloadable!]
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