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Employee Referral, Social Proximity and Worker Discipline: Theory and Evidence from India

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  • Amrita Dhillon
  • Vegard Iversen
  • Gaute Torsvik

Abstract

We study an important mechanism underlying employee referrals into informal low skilled jobs in developing countries. Employers can exploit social preferences between employee referees and potential workers to improve discipline. The profitability of using referrals increases with referee stakes in the firm, and, in most cases, with the strength of the social tie between the referee and the new recruit. We provide an empirical counterpart to these results using primary data covering low- and unskilled migrants in India. Consistent with the theoretical predictions, we find a high prevalence of workplace referral and strong kinship ties between referees and new recruits. Finally, workplace intermediaries are different from and typically in more ‘prestigious’ jobs than those recruited.

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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 4309.

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Date of creation: 2013
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Handle: RePEc:ces:ceswps:_4309

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Keywords: networks; low- and unskilled jobs; India; moral hazard; employee referrals; efficiency wages; referee incentives; strength of ties;

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  1. Wahba, Jackline & Zenou, Yves, 2003. "Density, Social Networks and Job Search Methods: Theory and Application to Egypt," CEPR Discussion Papers 3967, C.E.P.R. Discussion Papers.
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  13. Banerjee, Biswajit, 1991. "The determinants of migrating with a pre-arranged job and of the initial duration of urban unemployment : An analysis based on Indian data on rural-to-urban migrants," Journal of Development Economics, Elsevier, vol. 36(2), pages 337-351, October.
  14. Morris David Morris, 1955. "Labor Discipline, Trade-Unions, and the State in India," Journal of Political Economy, University of Chicago Press, vol. 63, pages 293.
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  16. Lori Beaman & Jeremy Magruder, 2012. "Who Gets the Job Referral? Evidence from a Social Networks Experiment," American Economic Review, American Economic Association, vol. 102(7), pages 3574-93, December.
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