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The Value of Hiring through Employee Referrals

Author

Listed:
  • Stephen V. Burks
  • Bo Cowgill
  • Mitchell Hoffman
  • Michael Housman

Abstract

Using personnel data from nine large firms in three industries (call centers, trucking, and high-tech), we empirically assess the benefit to firms of hiring through employee referrals. Compared to nonreferred applicants, referred applicants are more likely to be hired and more likely to accept offers, even though referrals and nonreferrals have similar skill characteristics. Referred workers tend to have similar productivity compared to nonreferred workers on most measures, but referred workers have lower accident rates in trucking and produce more patents in high-tech. Referred workers are substantially less likely to quit and earn slightly higher wages than nonreferred workers. In call centers and trucking, the two industries for which we can calculate worker-level profits, referred workers yield substantially higher profits per worker than nonreferred workers. These profit differences are driven by lower turnover and lower recruiting costs for referrals. JEL Codes: J24, M51, J30, J63.

Suggested Citation

  • Stephen V. Burks & Bo Cowgill & Mitchell Hoffman & Michael Housman, 2015. "The Value of Hiring through Employee Referrals," The Quarterly Journal of Economics, Oxford University Press, vol. 130(2), pages 805-839.
  • Handle: RePEc:oup:qjecon:v:130:y:2015:i:2:p:805-839
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    File URL: http://hdl.handle.net/10.1093/qje/qjv010
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    Citations

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    Cited by:

    1. Alain Cohn & Michel André Maréchal & Frédéric Schneider & Roberto A. Weber, 2015. "Job history, work attitude, and employability," ECON - Working Papers 210, Department of Economics - University of Zurich, revised Apr 2016.
    2. Marcelo Arbex & Dennis O'Dea & David Wiczer, 2016. "Network Search: Climbing the Job Ladder Faster," Working Papers 1606, University of Windsor, Department of Economics.
    3. Alonso, Ricardo, 2015. "Recruitment and Selection in Organizations," CEPR Discussion Papers 10662, C.E.P.R. Discussion Papers.
    4. Ian Schmutte, 2016. "How do social networks affect labor markets?," IZA World of Labor, Institute for the Study of Labor (IZA), pages 304-304, October.
    5. Martin Abel & Rulof Burger & Patrizio Piraino, 2017. "The value of reference letters," Working Papers 06/2017, Stellenbosch University, Department of Economics.
    6. Amanda Pallais & Emily Glassberg Sands, 2015. "Why the Referential Treatment: Evidence from Field Experiments on Referrals," NBER Working Papers 21357, National Bureau of Economic Research, Inc.
    7. Moshe A. Barach & John Horton, 2017. "How Do Employers Use Compensation History?: Evidence from a Field Experiment," CESifo Working Paper Series 6559, CESifo Group Munich.
    8. Englmaier, Florian & Schüßler, Katharina, 2015. "Complementarities of HRM Practices," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 503, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
    9. Arimoto, Yutaka & Machikita, Tomohiro & Tsubota, Kenmei, 2018. "Broker versus social networks in adverse working conditions: cross-sectional evidence from Cambodian migrants in Thailand," IDE Discussion Papers 686, Institute of Developing Economies, Japan External Trade Organization(JETRO).
    10. repec:eee:labeco:v:50:y:2018:i:c:p:67-79 is not listed on IDEAS
    11. Florian Englmaier & Katharina Schüßler, 2015. "Complementarities of HRM Practices - A Case for Employing Multiple Methods and Integrating Multiple Fields," CESifo Working Paper Series 5249, CESifo Group Munich.
    12. R. Jason Faberman & Guido Menzio, 2016. "Evidence on the Relationship between Recruiting and Starting Wage," NBER Working Papers 22915, National Bureau of Economic Research, Inc.
    13. Eliason, Marcus & Hensvik, Lena & Kramarz, Francis & Nordström Skans, Oskar, 2017. "The causal impact of social Connections on firms' outcomes," Working Paper Series 2017:11, IFAU - Institute for Evaluation of Labour Market and Education Policy.
    14. Bryan Stuart & Evan Taylor, 2017. "Migration Networks and Location Decisions: Evidence from U.S. Mass Migration," Working Papers 2017-26, The George Washington University, Institute for International Economic Policy.
    15. Friebel, Guido & Lalanne, Marie & Richter, Bernard & Schwardmann, Peter & Seabright, Paul, 2017. "Women form social networks more selectively and less opportunistically than men," SAFE Working Paper Series 168, Research Center SAFE - Sustainable Architecture for Finance in Europe, Goethe University Frankfurt.
    16. repec:iza:izawol:journl:2017:n:369 is not listed on IDEAS
    17. Edward P. Lazear & Kathryn L. Shaw & Christopher T. Stanton, 2016. "Who Gets Hired? The Importance of Finding an Open Slot," NBER Working Papers 22202, National Bureau of Economic Research, Inc.
    18. Manolis Galenianos, 2016. "Referral networks and inequality," 2016 Meeting Papers 1173, Society for Economic Dynamics.
    19. Brian Jacob & Jonah E. Rockoff & Eric S. Taylor & Benjamin Lindy & Rachel Rosen, 2016. "Teacher Applicant Hiring and Teacher Performance: Evidence from DC Public Schools," NBER Working Papers 22054, National Bureau of Economic Research, Inc.

    More about this item

    JEL classification:

    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • M51 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Firm Employment Decisions; Promotions
    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General
    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs

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