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Information Channels in Labor Markets. On the Resilience of Referral Hiring

Author

Listed:
  • Alessandra Casella

    (Columbia University)

  • Nobuyuki Hanaki

    (Earth Institute, Columbia University)

Abstract

Economists and sociologists disagree over markets' potential to assume functions typically performed by networks of personal connections, first among them the transmission of information. This paper begins from a model of labor markets where social ties are stronger between similar individuals and firms employing productive workers prefer to rely on personal referrals than to hire on the anonymous market (Montgomery (1991). However, we allow workers in the market to engage in a costly action that can signal their high productivity, and ask whether the possibility of signaling reduces the reliance on the network. We find that the network is remarkably resilient. To be effective signaling must fulfill two contradictory requirements: unless the signal is extremely precise, it must be expensive or it is not informative; but it must be cheap, or the network can undercut it.

Suggested Citation

  • Alessandra Casella & Nobuyuki Hanaki, 2005. "Information Channels in Labor Markets. On the Resilience of Referral Hiring," Working Papers 2005.37, Fondazione Eni Enrico Mattei.
  • Handle: RePEc:fem:femwpa:2005.37
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    References listed on IDEAS

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    3. Antoni Calvó-Armengol & Matthew O. Jackson, 2004. "The Effects of Social Networks on Employment and Inequality," American Economic Review, American Economic Association, vol. 94(3), pages 426-454, June.
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    5. Samuel Bentolila & Claudio Michelacci & Javier Suarez, 2010. "Social Contacts and Occupational Choice," Economica, London School of Economics and Political Science, vol. 77(305), pages 20-45, January.
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    9. Greif, Avner, 1993. "Contract Enforceability and Economic Institutions in Early Trade: the Maghribi Traders' Coalition," American Economic Review, American Economic Association, vol. 83(3), pages 525-548, June.
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    11. Michele Pellizzari, 2010. "Do Friends and Relatives Really Help in Getting a Good Job?," ILR Review, Cornell University, ILR School, vol. 63(3), pages 494-510, April.
    12. Kranton, Rachel E, 1996. "Reciprocal Exchange: A Self-Sustaining System," American Economic Review, American Economic Association, vol. 86(4), pages 830-851, September.
    13. Tassier, Troy & Menczer, Filippo, 2008. "Social network structure, segregation, and equality in a labor market with referral hiring," Journal of Economic Behavior & Organization, Elsevier, vol. 66(3-4), pages 514-528, June.
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    Citations

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    Cited by:

    1. Stanton, Christopher & Thomas, Catherine, 2016. "Landing the first job: the value of intermediaries in online hiring," LSE Research Online Documents on Economics 65160, London School of Economics and Political Science, LSE Library.
    2. Tito Boeri & Pietro Garibaldi & Espen R. Moen, 2014. "Financial Constraints in Search Equilibrium: Mortensen and Pissarides Meet Holmstrom and Tirole," CEP Discussion Papers dp1317, Centre for Economic Performance, LSE.
    3. Nakajima, Ryo & Tamura, Ryuichi & Hanaki, Nobuyuki, 2010. "The effect of collaboration network on inventors' job match, productivity and tenure," Labour Economics, Elsevier, vol. 17(4), pages 723-734, August.
    4. Christian Holzner & Makoto Watanabe, 2015. "Labor Market Equilibrium with Public Employment Agency," CESifo Working Paper Series 5245, CESifo Group Munich.
    5. Oyer, Paul & Schaefer, Scott, 2011. "Personnel Economics: Hiring and Incentives," Handbook of Labor Economics, Elsevier.
    6. Alessandra Casella & Nobuyuki Hanaki, 2006. "Why Personal Ties Cannot Be Bought," American Economic Review, American Economic Association, vol. 96(2), pages 261-264, May.
    7. Francis Kramarz & Oskar Nordström Skans, 2014. "When Strong Ties are Strong: Networks and Youth Labour Market Entry," Review of Economic Studies, Oxford University Press, vol. 81(3), pages 1164-1200.
    8. Christopher Stanton & Catherine Thomas, 2014. "Landing The First Job: The Value of Intermediaries in Online Hiring," CEP Discussion Papers dp1316, Centre for Economic Performance, LSE.
    9. Dhillon, Amrita & Iversen, Vegard & Torsvik, Gaute, 2012. "Employee referral, social proximity and worker discipline," CAGE Online Working Paper Series 90, Competitive Advantage in the Global Economy (CAGE).
    10. Nicodemo, Catia & Nicolini, Rosella, 2012. "Random or Referral Hiring: When Social Connections Matter," IZA Discussion Papers 6312, Institute for the Study of Labor (IZA).
    11. Avner Ben-Ner & Matthew Ellman, 2013. "The contributions of behavioural economics to understanding and advancing the sustainability of worker cooperatives," Journal of Entrepreneurial and Organizational Diversity, European Research Institute on Cooperative and Social Enterprises, vol. 2(1), pages 75-100, August.
    12. Stanton, Christopher & Thomas, Catherine, 2014. "Landing the first job: the value of intermediaries in online hiring," LSE Research Online Documents on Economics 60609, London School of Economics and Political Science, LSE Library.
    13. repec:ehl:lserod:59069 is not listed on IDEAS

    More about this item

    Keywords

    Networks; Signaling; Referral hiring; Referral premium;

    JEL classification:

    • A14 - General Economics and Teaching - - General Economics - - - Sociology of Economics
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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