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

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References

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  1. Laura Giuliano & David I. Levine & Jonathon Leonard, 2006. "Manager Race and the Race of New Hires," Working Papers 0722, University of Miami, Department of Economics.
  2. Manolis Galenianos, 2010. "Hiring through Referrals," 2010 Meeting Papers 516, Society for Economic Dynamics.
  3. Bayer, Patrick & Ross, Stephen L., 2005. "Place of Work and Place of Residence: Informal Hiring Networks and Labor Market Outcomes," Working Papers 8, Yale University, Department of Economics.
  4. 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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  8. 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.
  9. Topa, Giorgio, 2001. "Social Interactions, Local Spillovers and Unemployment," Review of Economic Studies, Wiley Blackwell, vol. 68(2), pages 261-95, April.
  10. Michele Pellizzari, 2010. "Do Friends and Relatives Really Help in Getting a Good Job?," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 63(3), pages 494-510, April.
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  14. 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.
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  17. Holzer, Harry J, 1988. "Search Method Use by Unemployed Youth," Journal of Labor Economics, University of Chicago Press, vol. 6(1), pages 1-20, January.
  18. Jovanovic, Boyan, 1984. "Matching, Turnover, and Unemployment," Journal of Political Economy, University of Chicago Press, vol. 92(1), pages 108-22, February.
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  20. Manishi Prasad & Peter Wahlqvist & Rich Shikiar & Ya-Chen Tina Shih, 2004. "A," PharmacoEconomics, Springer Healthcare | Adis, vol. 22(4), pages 225-244.
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Cited by:
  1. Judith K. Hellerstein & Mark J. Kutzbach & David Neumark, 2013. "Do Labor Market Networks Have An Important Spatial Dimension?," NBER Working Papers 18763, National Bureau of Economic Research, Inc.
  2. Hensvik, Lena & Nordström Skans, Oskar, 2013. "Networks and youth labor market entry," Working Paper Series 2013:23, IFAU - Institute for Evaluation of Labour Market and Education Policy.

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