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Do informal referrals lead to better matches? Evidence from a firm's employee referral system

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  • Meta Brown
  • Elizabeth Setren
  • Giorgio Topa

Abstract

The limited nature of data on employment referrals in large business and household surveys has so far impeded our efforts to understand the relationships among employment referrals, match quality, wage trajectories, and turnover. Using a new firm-level data set that includes explicit information on whether a worker at the company was referred by a current employee, we are able to provide rich detail on these empirical relationships for a single U.S. corporation and to test various predictions of theoretical models of labor market referrals. Our results align with the following predictions: 1) referred candidates are more likely to be hired, 2) referred workers experience an initial wage advantage, 3) the wage advantage dissipates over time, 4) referred workers have longer tenure in the firm, and 5) the variances of the referred and nonreferred wage distributions converge over time. The richness of the data allows us to analyze the role of referrer-referee relationships, and the size and diversity of the corporation permit analysis of referrals at a wide variety of skill and experience levels.

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Bibliographic Info

Paper provided by Federal Reserve Bank of New York in its series Staff Reports with number 568.

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Date of creation: 2012
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Handle: RePEc:fip:fednsr:568

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Related research

Keywords: Employment ; Job hunting ; Wages ; Job satisfaction;

This paper has been announced in the following NEP Reports:

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  1. Giuliano, Laura & Levine, David I. & Leonard, Jonathan, 2006. "Manager Race and the Race of New Hires," Institute for Research on Labor and Employment, Working Paper Series qt2cb2q1h1, Institute of Industrial Relations, UC Berkeley.
  2. Olof Aslund & Oskar Nordström Skans, 2010. "Will I See You at Work? Ethnic Workplace Segregation in Sweden, 1985-2002," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 63(3), pages 471-493, April.
  3. Linda Datcher Loury, 2006. "Some Contacts Are More Equal than Others: Informal Networks, Job Tenure, and Wages," Journal of Labor Economics, University of Chicago Press, vol. 24(2), pages 299-318, April.
  4. 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.
  5. 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.
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