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Learning About Match Quality and the Use of Referrals

Author

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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

    as
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    Cited by:

    1. Schmutte, Ian M., 2016. "Labor markets with endogenous job referral networks: Theory and empirical evidence," Labour Economics, Elsevier, vol. 42(C), pages 30-42.
    2. Christian Holzner & Makoto Watanabe, 2015. "Labor Market Equilibrium with Public Employment Agency," CESifo Working Paper Series 5245, CESifo Group Munich.
    3. Meta Brown & Elizabeth Setren & Giorgio Topa, 2016. "Do Informal Referrals Lead to Better Matches? Evidence from a Firm's Employee Referral System," Journal of Labor Economics, University of Chicago Press, vol. 34(1), pages 161-209.
    4. Carlos Carrillo-Tudela & Eric Smith, 2017. "Search Capital," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 23, pages 191-211, January.
    5. Galenianos, Manolis, 2014. "Hiring through referrals," Journal of Economic Theory, Elsevier, vol. 152(C), pages 304-323.
    6. Giorgio Topa & Aysegul Sahin & Andreas Mueller & Jason Faberman, 2016. "Job Search Behavior among the Employed and Non-Employed," 2016 Meeting Papers 1469, Society for Economic Dynamics.
    7. Rebien, Martina & Stops, Michael & Zaharieva, Anna, 2017. "Formal search and referrals from a firm's perspective," Center for Mathematical Economics Working Papers 578, Center for Mathematical Economics, Bielefeld University.
    8. Yoske Igarashi, 2016. "Distributional effects of hiring through networks," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 20, pages 90-110, April.
    9. Topa, Giorgio & Zenou, Yves, 2015. "Neighborhood and Network Effects," Handbook of Regional and Urban Economics, Elsevier.
    10. 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.
    11. 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.
    12. Michele Battisti & Giovanni Peri & Agnese Romiti, 2016. "Dynamic Effects of Co-Ethnic Networks on Immigrants' Economic Success," NBER Working Papers 22389, National Bureau of Economic Research, Inc.
    13. Horváth, Gergely, 2014. "Occupational mismatch and social networks," Journal of Economic Behavior & Organization, Elsevier, vol. 106(C), pages 442-468.
    14. Manolis Galenianos, 2016. "Referral networks and inequality," 2016 Meeting Papers 1173, Society for Economic Dynamics.

    More about this item

    Keywords

    Seach; matching; referrals; learning;

    JEL classification:

    • J0 - Labor and Demographic Economics - - General

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