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What Do Employee Referral Programs Do? Measuring the Direct and Overall Effects of a Management Practice

Author

Listed:
  • Guido Friebel
  • Matthias Heinz
  • Mitchell Hoffman
  • Nick Zubanov

Abstract

Employee referral programs (ERPs) are randomly introduced in a grocery chain. On direct effects, larger referral bonuses increase referral quantity but decrease quality, though the increase in referrals from ERPs is modest. However, the overall effect of having an ERP is substantial, reducing attrition by 15% and significantly decreasing labor costs. This occurs, partly, because referrals stay longer than nonreferrals, but, mainly, from indirect effects: nonreferrals stay longer in treated than in control stores. The most supported mechanism for these indirect effects is workers value being involved in hiring. Attrition impacts are larger in higher performing stores and better local labor markets.

Suggested Citation

  • Guido Friebel & Matthias Heinz & Mitchell Hoffman & Nick Zubanov, 2023. "What Do Employee Referral Programs Do? Measuring the Direct and Overall Effects of a Management Practice," Journal of Political Economy, University of Chicago Press, vol. 131(3), pages 633-686.
    • Handle: RePEc:ucp:jpolec:doi:10.1086/721735
    DOI: 10.1086/721735
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    Cited by:

    1. Sule Alan & Gozde Corekcioglu & Matthias Sutter, 2023. "Improving Workplace Climate in Large Corporations: A Clustered Randomized Intervention," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 138(1), pages 151-203.
    2. Daniel Ober-Reynolds, 2023. "Estimating Functionals of the Joint Distribution of Potential Outcomes with Optimal Transport," Papers 2311.09435, arXiv.org.
    3. Sule Alan & Gozde Corekcioglu & Mustafa Kaba & Matthias Sutter, 2023. "Female Leadership and Workplace Climate," ECONtribute Policy Brief Series 057, University of Bonn and University of Cologne, Germany.
    4. Benjamin Lester & David A. Rivers & Giorgio Topa, 2021. "The Heterogeneous Impact of Referrals on Labor Market Outcomes," Working Papers 21-34, Federal Reserve Bank of Philadelphia.
    5. Marie-Pierre Dargnies & Rustamdjan Hakimov & Dorothea Kübler, 2025. "Behavioral Measures Improve AI Hiring: A Field Experiment," Rationality and Competition Discussion Paper Series 532, CRC TRR 190 Rationality and Competition.
    6. Block, Sidney T. & Friebel, Guido & Heinz, Matthias & Zubanov, Nick, 2022. "Mystery Shopping as a Strategic Management Practice in Multi-Site Firms," IZA Discussion Papers 15599, IZA Network @ LISER.
    7. Emre Ekinci, 2022. "Monetary rewards in employee referral programs," Manchester School, University of Manchester, vol. 90(1), pages 35-58, January.
    8. Yi Chen & Fabiano Dal-Ri & Thomas Jungbauer & Daniela Scur, 2025. "Poaching, raids, and managerial compensation," CEP Discussion Papers dp2118, Centre for Economic Performance, LSE.
    9. Hederos, Karin & Sandberg, Anna & Kvissberg, Lukas & Polano, Erik, 2025. "Gender homophily in job referrals: Evidence from a field study among university students," Labour Economics, Elsevier, vol. 92(C).
    10. Mitchell Hoffman & Christopher T. Stanton, 2024. "People, Practices, and Productivity: A Review of New Advances in Personnel Economics," NBER Working Papers 32849, National Bureau of Economic Research, Inc.

    More about this item

    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • M51 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Firm Employment Decisions; Promotions
    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects

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