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How Much Do Employers Learn from Referrals?

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  • JOSHUA C. PINKSTON

Abstract

This paper tests the hypothesis that referrals from various sources provide employers with more information about job applicants than they would have without a referral. I use data from the 1982 EOPP Survey of employers that contain information on two workers in the same job, allowing me to cancel out differences in job and firm characteristics and control for the possibility that workers with referrals from different sources (or no referral at all) might sort into jobs that put different weights on individual performance. My estimation results provide evidence consistent with referrals from friends and family members providing employers with more information than they would have otherwise. Despite the information they provide, however, it appears as though referrals from family members are associated with jobs that put less weight on performance overall. On the other hand, referrals from other employers or labor unions appear to provide little, if any, information but are associated with jobs that put more weight on performance than the average job does. I find no evidence that referrals from schools, community organizations or other sources provide useful information.
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Suggested Citation

  • Joshua C. Pinkston, 2012. "How Much Do Employers Learn from Referrals?," Industrial Relations: A Journal of Economy and Society, Wiley Blackwell, vol. 51(2), pages 317-341, April.
  • Handle: RePEc:bla:indres:v:51:y:2012:i:2:p:317-341
    DOI: j.1468-232X.2012.00679.x
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    File URL: http://hdl.handle.net/10.1111/j.1468-232X.2012.00679.x
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    References listed on IDEAS

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    1. Pinkston, Joshua C., 2003. "Screening discrimination and the determinants of wages," Labour Economics, Elsevier, vol. 10(6), pages 643-658, December.
    2. Harry J. Holzer, 1987. "Hiring Procedures in the Firm: Their Economic Determinants and Outcomes," NBER Working Papers 2185, National Bureau of Economic Research, Inc.
    3. Kugler, Adriana D., 2003. "Employee referrals and efficiency wages," Labour Economics, Elsevier, vol. 10(5), pages 531-556, October.
    4. Jovanovic, Boyan, 1979. "Job Matching and the Theory of Turnover," Journal of Political Economy, University of Chicago Press, vol. 87(5), pages 972-990, October.
    5. Cornell, Bradford & Welch, Ivo, 1996. "Culture, Information, and Screening Discrimination," Journal of Political Economy, University of Chicago Press, vol. 104(3), pages 542-571, June.
    6. Blau, David M & Robins, Philip K, 1990. "Job Search Outcomes for the Employed and Unemployed," Journal of Political Economy, University of Chicago Press, vol. 98(3), pages 637-655, June.
    7. Dennis J. Aigner & Glen G. Cain, 1977. "Statistical Theories of Discrimination in Labor Markets," ILR Review, Cornell University, ILR School, vol. 30(2), pages 175-187, January.
    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 306-330, July.
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    Cited by:

    1. Christian Dustmann & Albrecht Glitz & Uta Schönberg & Herbert Brücker, 2016. "Referral-based Job Search Networks," Review of Economic Studies, Oxford University Press, vol. 83(2), pages 514-546.
    2. Manolis Galenianos, 2013. "Learning About Match Quality and the Use of Referrals," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 16(4), pages 668-690, October.
    3. Manolis Galenianos, 2012. "Learning Through Referrals," 2012 Meeting Papers 814, Society for Economic Dynamics.
    4. Lena Hensvik & Oskar Nordström Skans, 2016. "Social Networks, Employee Selection, and Labor Market Outcomes," Journal of Labor Economics, University of Chicago Press, vol. 34(4), pages 825-867.
    5. Rao, Neel, 2016. "Social effects in employer learning: An analysis of siblings," Labour Economics, Elsevier, vol. 38(C), pages 24-36.
    6. Manolis Galenianos, 2016. "Referral networks and inequality," 2016 Meeting Papers 1173, Society for Economic Dynamics.

    More about this item

    JEL classification:

    • J6 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers
    • M51 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Firm Employment Decisions; Promotions
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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