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The Role of Referrals in Immobility, Inequality, and Inefficiency in Labor Markets

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  • Lukas Bolte
  • Nicole Immorlica
  • Matthew O. Jackson

Abstract

We study the consequences of job markets' heavy reliance on referrals. Referrals lead to more opportunities for workers to be hired, which lead to better matches and increased productivity, but also disadvantage job-seekers with few or no connections to employed workers, increasing inequality. Coupled with homophily, referrals also lead to immobility. We identify conditions under which distributing referrals more evenly reduces inequality and improves future productivity and mobility. We use the model to examine the short and long-run welfare impacts of policies such as affirmative action and algorithmic fairness.

Suggested Citation

  • Lukas Bolte & Nicole Immorlica & Matthew O. Jackson, 2020. "The Role of Referrals in Immobility, Inequality, and Inefficiency in Labor Markets," Papers 2012.15753, arXiv.org, revised Apr 2026.
    • Handle: RePEc:arx:papers:2012.15753
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    3. Mylius, F., 2023. "Why Personal Ties (Still) Matter: Referrals and Congestion," Cambridge Working Papers in Economics 2356, Faculty of Economics, University of Cambridge.

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