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Learning About Match Quality and the Use of Referrals

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  • Manolis Galenianos

    (Pennsylvania State University)

Abstract

The firm's decision to use referrals as a hiring method is studied in a theoretical model of the labor market. The labor market is characterized by search frictions and uncertain quality of the match between a worker and a job. Using referrals increases the arrival rate of applicants and provides more accurate signals regarding a worker's suitability for the job. Consistent with the data, referred workers are predicted to have higher wage, higher productivity and lower separation rates and these differentials decline with tenure. The model is extended by introducing heterogeneity in firm productivity and allowing the endogenous determination of signal accuracy. High productivity firms are predicted to invest more in increasing signal accuracy and use referrals to a lesser extent. (Copyright: Elsevier)

Suggested Citation

  • 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.
  • Handle: RePEc:red:issued:12-104
    DOI: 10.1016/j.red.2012.11.005
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    References listed on IDEAS

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    More about this item

    Keywords

    Seach; matching; referrals; learning;
    All these keywords.

    JEL classification:

    • J0 - Labor and Demographic Economics - - General

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