Information Channels in Labour Markets. On the Resilience of Referral Hiring
AbstractEconomists and sociologists disagree over markets’ potential to take over functions typically performed by networks of personal connections. First among them is the reliable transmission of information. In this paper we begin from a model of labour markets where social ties are stronger between similar individuals, and thus firms employing productive workers prefer to rely on personal referrals by their employees than to hire on the open anonymous market (Montgomery (1991)). However, we allow workers in the anonymous market to engage in a costly action that has the potential to signal their high productivity. We study the extent to which the possibility of signalling reduces the reliance on the network. We find that the network is remarkably resilient - only for a small minority of parameter values does the network disappear. The problem is that to be effective signalling must fulfill two contradictory requirements: unless the signal is extremely precise, it must be expensive, or it is not informative; but it must be cheap, or the network can undercut it.
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Bibliographic InfoPaper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 4969.
Date of creation: Mar 2005
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Other versions of this item:
- Casella, Alessandra & Hanaki, Nobuyuki, 2008. "Information channels in labor markets: On the resilience of referral hiring," Journal of Economic Behavior & Organization, Elsevier, vol. 66(3-4), pages 492-513, June.
- Alessandra Casella & Nobuyuki Hanaki, 2005. "Information Channels in Labor Markets. On the Resilience of Referral Hiring," Working Papers 2005.37, Fondazione Eni Enrico Mattei.
- Alessandra Casella & Nobuyuki Hanaki, 2005. "Information channels in labor markets: On the resilience of referral hiring," Discussion Papers 0506-05, Columbia University, Department of Economics.
- A14 - General Economics and Teaching - - General Economics - - - Sociology of Economics
- D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information
- J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
- J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-06-14 (All new papers)
- NEP-NET-2005-06-14 (Network Economics)
- NEP-URE-2005-06-14 (Urban & Real Estate Economics)
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