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What Do Employee Referral Programs Do? Measuring the Direct and Overall Effects of a Management Practice

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  • Guido Friebel
  • Matthias Heinz
  • Mitchell Hoffman
  • Nick Zubanov

Abstract

Employee referral programs (ERPs) are randomly introduced in a grocery chain. On direct effects, larger referral bonuses increase referral quantity but decrease quality, though the increase in referrals from ERPs is modest. However, the overall effect of having an ERP is substantial, reducing attrition by 15% and significantly decreasing labor costs. This occurs, partly, because referrals stay longer than non-referrals, but, mainly, from indirect effects: non-referrals stay longer in treated than in control stores. The most-supported mechanism for these indirect effects is workers value being involved in hiring. Attrition impacts are larger in higher-performing stores and better local labor markets.

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  • Guido Friebel & Matthias Heinz & Mitchell Hoffman & Nick Zubanov, 2019. "What Do Employee Referral Programs Do? Measuring the Direct and Overall Effects of a Management Practice," NBER Working Papers 25920, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:25920
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    2. Daniel Ober-Reynolds, 2023. "Estimating Functionals of the Joint Distribution of Potential Outcomes with Optimal Transport," Papers 2311.09435, arXiv.org.
    3. Sule Alan & Gozde Corekcioglu & Mustafa Kaba & Matthias Sutter, 2023. "Female Leadership and Workplace Climate," ECONtribute Policy Brief Series 057, University of Bonn and University of Cologne, Germany.
    4. Benjamin Lester & David A. Rivers & Giorgio Topa, 2021. "The Heterogeneous Impact of Referrals on Labor Market Outcomes," Working Papers 21-34, Federal Reserve Bank of Philadelphia.
    5. Block, Sidney T. & Friebel, Guido & Heinz, Matthias & Zubanov, Nick, 2022. "Mystery Shopping as a Strategic Management Practice in Multi-Site Firms," IZA Discussion Papers 15599, Institute of Labor Economics (IZA).
    6. Emre Ekinci, 2022. "Monetary rewards in employee referral programs," Manchester School, University of Manchester, vol. 90(1), pages 35-58, January.

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    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • M51 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Firm Employment Decisions; Promotions
    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects

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