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Do Informal Referrals Lead to Better Matches? Evidence from a Firm's Employee Referral System

Author

Listed:
  • Brown, Meta

    (Federal Reserve Bank of New York)

  • Setren, Elizabeth

    (MIT)

  • Topa, Giorgio

    (Federal Reserve Bank of New York)

Abstract

Using a new firm-level dataset that includes explicit information on referrals by current employees, we investigate the hiring process and the relationships among referrals, match quality, wage trajectories and turnover for a single U.S. corporation, and test various predictions of theoretical models of labor market referrals. We find that referred candidates are more likely to be hired; experience an initial wage advantage which dissipates over time; and have longer tenure in the firm. Further, the variances of the referred and non-referred wage distributions converge over time. The observed referral effects appear to be stronger at lower skill levels. The data also permit analysis of the role of referrer-referee pair characteristics.

Suggested Citation

  • Brown, Meta & Setren, Elizabeth & Topa, Giorgio, 2014. "Do Informal Referrals Lead to Better Matches? Evidence from a Firm's Employee Referral System," IZA Discussion Papers 8175, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp8175
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    References listed on IDEAS

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    More about this item

    Keywords

    referrals; human resources; turnover; wage trajectory;
    All these keywords.

    JEL classification:

    • 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
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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