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Information channels in labor markets: On the resilience of referral hiring

Author

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  • Casella, Alessandra
  • Hanaki, Nobuyuki

Abstract

Economists and sociologists disagree over markets' potential to substitute for personal connections. We study a model of labor markets where social ties are stronger between similar individuals, and firms prefer to rely on personal referrals than to hire on the open market. Workers in the market can take a costly action that can signal their productivity. The paper asks whether signaling reduces the reliance on the network. We find that the network is remarkably resilient. Signaling is caught in two contradictory requirements: to be informative it must be expensive, but if it expensive it can be undercut by the network.

Suggested Citation

  • 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.
  • Handle: RePEc:eee:jeborg:v:66:y:2008:i:3-4:p:492-513
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    Citations

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    Cited by:

    1. Stanton, Christopher & Thomas, Catherine, 2016. "Landing the first job: the value of intermediaries in online hiring," LSE Research Online Documents on Economics 65160, London School of Economics and Political Science, LSE Library.
    2. Tito Boeri & Pietro Garibaldi & Espen R. Moen, 2014. "Financial Constraints in Search Equilibrium: Mortensen and Pissarides Meet Holmstrom and Tirole," CEP Discussion Papers dp1317, Centre for Economic Performance, LSE.
    3. Nakajima, Ryo & Tamura, Ryuichi & Hanaki, Nobuyuki, 2010. "The effect of collaboration network on inventors' job match, productivity and tenure," Labour Economics, Elsevier, vol. 17(4), pages 723-734, August.
    4. Christian Holzner & Makoto Watanabe, 2015. "Labor Market Equilibrium with Public Employment Agency," CESifo Working Paper Series 5245, CESifo Group Munich.
    5. Oyer, Paul & Schaefer, Scott, 2011. "Personnel Economics: Hiring and Incentives," Handbook of Labor Economics, Elsevier.
    6. Alessandra Casella & Nobuyuki Hanaki, 2006. "Why Personal Ties Cannot Be Bought," American Economic Review, American Economic Association, vol. 96(2), pages 261-264, May.
    7. Francis Kramarz & Oskar Nordström Skans, 2014. "When Strong Ties are Strong: Networks and Youth Labour Market Entry," Review of Economic Studies, Oxford University Press, vol. 81(3), pages 1164-1200.
    8. Christopher Stanton & Catherine Thomas, 2014. "Landing The First Job: The Value of Intermediaries in Online Hiring," CEP Discussion Papers dp1316, Centre for Economic Performance, LSE.
    9. Dhillon, Amrita & Iversen, Vegard & Torsvik, Gaute, 2012. "Employee referral, social proximity and worker discipline," CAGE Online Working Paper Series 90, Competitive Advantage in the Global Economy (CAGE).
    10. Nicodemo, Catia & Nicolini, Rosella, 2012. "Random or Referral Hiring: When Social Connections Matter," IZA Discussion Papers 6312, Institute for the Study of Labor (IZA).
    11. Avner Ben-Ner & Matthew Ellman, 2013. "The contributions of behavioural economics to understanding and advancing the sustainability of worker cooperatives," Journal of Entrepreneurial and Organizational Diversity, European Research Institute on Cooperative and Social Enterprises, vol. 2(1), pages 75-100, August.
    12. Stanton, Christopher & Thomas, Catherine, 2014. "Landing the first job: the value of intermediaries in online hiring," LSE Research Online Documents on Economics 60609, London School of Economics and Political Science, LSE Library.
    13. repec:ehl:lserod:59069 is not listed on IDEAS

    More about this item

    JEL classification:

    • A14 - General Economics and Teaching - - General Economics - - - Sociology of Economics
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • 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

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