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Learning About Match Quality and the Use of Referrals

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Author Info

  • Manolis Galenianos

    (Pennsylvania State University)

Abstract

The firm's decision to use referrals as a hiring method is studied in a theoretical model of the labor market. The labor market is characterized by search frictions and uncertain quality of the match between a worker and a job. Using referrals increases the arrival rate of applicants and provides more accurate signals regarding a worker's suitability for the job. Consistent with the data, referred workers are predicted to have higher wage, higher productivity and lower separation rates and these differentials decline with tenure. The model is extended by introducing heterogeneity in firm productivity and allowing the endogenous determination of signal accuracy. High productivity firms are predicted to invest more in increasing signal accuracy and use referrals to a lesser extent. (Copyright: Elsevier)

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File URL: http://dx.doi.org/10.1016/j.red.2012.11.005
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Bibliographic Info

Article provided by Elsevier for the Society for Economic Dynamics in its journal Review of Economic Dynamics.

Volume (Year): 16 (2013)
Issue (Month): 4 (October)
Pages: 668-690

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Handle: RePEc:red:issued:12-104

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Related research

Keywords: Seach; matching; referrals; learning;

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References

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  1. Uta Schoenberg & Albrecht Glitz & Christian Dustmann, 2011. "Referral-based Job Search Networks," 2011 Meeting Papers 350, Society for Economic Dynamics.
  2. Joshua C. Pinkston, 2006. "How Much Do Employers Learn from Referrals?," Working Papers 392, U.S. Bureau of Labor Statistics.
  3. Barron, John M & Black, Dan A & Loewenstein, Mark A, 1987. "Employer Size: The Implications for Search, Training, Capital Investment, Starting Wages, and Wage Growth," Journal of Labor Economics, University of Chicago Press, vol. 5(1), pages 76-89, January.
  4. Javier Suarez & Samuel Bentolila & Claudio Michelacci, 2004. "Social Contacts and Occupational Choice," 2004 Meeting Papers 593, Society for Economic Dynamics.
  5. repec:bla:restud:v:74:y:2007:i:2:p:537-566 is not listed on IDEAS
  6. 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.
  7. Michael J. Pries, 2004. "Persistence of Employment Fluctuations: A Model of Recurring Job Loss," Review of Economic Studies, Oxford University Press, vol. 71(1), pages 193-215.
  8. Michele Pellizzari, 2004. "Do Friends and Relatives Really Help in Getting a Good Job?," CEP Discussion Papers dp0623, Centre for Economic Performance, LSE.
  9. Simon, Curtis J & Warner, John T, 1992. "Matchmaker, Matchmaker: The Effect of Old Boy Networks on Job Match Quality, Earnings, and Tenure," Journal of Labor Economics, University of Chicago Press, vol. 10(3), pages 306-30, July.
  10. Manolis Galenianos, 2010. "Hiring through Referrals," 2010 Meeting Papers 516, Society for Economic Dynamics.
  11. Harry J. Holzer, 1987. "Hiring Procedures in the Firm: Their Economic Determinants and Outcomes," NBER Working Papers 2185, National Bureau of Economic Research, Inc.
  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.
  13. �va Nagyp�l, 2007. "Learning by Doing vs. Learning About Match Quality: Can We Tell Them Apart?," Review of Economic Studies, Oxford University Press, vol. 74(2), pages 537-566.
  14. Jovanovic, Boyan, 1979. "Job Matching and the Theory of Turnover," Journal of Political Economy, University of Chicago Press, vol. 87(5), pages 972-90, October.
  15. Datcher, Linda, 1983. "The Impact of Informal Networks of Quit Behavior," The Review of Economics and Statistics, MIT Press, vol. 65(3), pages 491-95, August.
  16. Giuseppe Moscarini, 2005. "Job Matching and the Wage Distribution," Econometrica, Econometric Society, vol. 73(2), pages 481-516, 03.
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Cited by:
  1. Giorgio Topa & Elizabeth Setren & Meta Brown, 2012. "Do Informal Referrals Lead to Better Matches? Evidence from a FirmÂ’'s Employee Referral System," 2012 Meeting Papers 648, Society for Economic Dynamics.

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