Information Channels in Labor Markets. On the Resilience of Referral Hiring
AbstractEconomists and sociologists disagree over markets' potential to assume functions typically performed by networks of personal connections, first among them the transmission of information. This paper begins from a model of labor markets where social ties are stronger between similar individuals and firms employing productive workers prefer to rely on personal referrals than to hire on the anonymous market (Montgomery (1991). However, we allow workers in the market to engage in a costly action that can signal their high productivity, and ask whether the possibility of signaling reduces the reliance on the network. We find that the network is remarkably resilient. To be effective signaling 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 Fondazione Eni Enrico Mattei in its series Working Papers with number 2005.37.
Date of creation: Mar 2005
Date of revision:
Networks; Signaling; Referral hiring; Referral premium;
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.
- Casella, Alessandra & Hanaki, Nobuyuki, 2005. "Information Channels in Labour Markets. On the Resilience of Referral Hiring," CEPR Discussion Papers 4969, C.E.P.R. Discussion Papers.
- 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
- 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
- D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information
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