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Do informal referrals lead to better matches? Evidence from a firm's employee referral system

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Abstract

The limited nature of data on employment referrals in large business and household surveys has so far limited our understanding of the relationships among employment referrals, match quality, wage trajectories, and turnover. Using a new, firm-level data set that includes explicit information on whether a worker was referred by a current employee of the company, we are able to provide rich detail on these empirical relationships for a single U.S. corporation, and to test various predictions of theoretical models of labor market referrals. Predictions with which our results align include: 1) referred candidates are more likely to be hired, 2) referred workers experience an initial wage advantage, 3) the wage advantage dissipates over time, 4) referred workers have longer tenure in the firm, and 5) the variances of the referred and nonreferred wage distributions converge over time. The richness of the data permits analysis of the role of referrer-referee relationships, and the size and diversity of the corporation permit analysis of referrals at a variety of skill and experience levels.

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  • Meta Brown & Elizabeth Setren & Giorgio Topa, 2012. "Do informal referrals lead to better matches? Evidence from a firm's employee referral system," Staff Reports 568, Federal Reserve Bank of New York.
  • Handle: RePEc:fip:fednsr:568
    Note: For a published version of this report, see Meta Brown, Elizabeth Setren, and Giorgio Topa, "Do Informal Referrals Lead to Better Matches? Evidence from a Firm's Employee Referral System," Journal of Labor Economics 34, no. 1 (January 2016): 161-209.
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    More about this item

    Keywords

    networks; wage mobility; turnover; personnel; referrals;
    All these keywords.

    JEL classification:

    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General
    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs

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