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

  • Brown, Meta

    ()

    (Federal Reserve Bank of New York)

  • Setren, Elizabeth

    ()

    (MIT)

  • Topa, Giorgio

    ()

    (Federal Reserve Bank of New York)

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.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 8175.

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Length: 57 pages
Date of creation: May 2014
Date of revision:
Handle: RePEc:iza:izadps:dp8175
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  1. Patrick Bayer & Stephen L. Ross & Giorgio Topa, 2004. "Place of Work and Place of Residence: Informal Hiring Networks and Labor Market Outcomes," Working papers 2004-07, University of Connecticut, Department of Economics, revised Oct 2005.
  2. Giuliano, Laura & Levine, David I. & Leonard, Jonathan, 2006. "Manager Race and the Race of New Hires," Institute for Research on Labor and Employment, Working Paper Series qt2cb2q1h1, Institute of Industrial Relations, UC Berkeley.
  3. Jovanovic, Boyan, 1984. "Matching, Turnover, and Unemployment," Journal of Political Economy, University of Chicago Press, vol. 92(1), pages 108-22, February.
  4. Michele Pellizzari, 2004. "Do Friends and Relatives Really Help in Getting a Good Job?," CEP Discussion Papers dp0623, Centre for Economic Performance, LSE.
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  6. repec:spr:pharme:v:22:y:2004:i:4:p:225-244 is not listed on IDEAS
  7. Harry J. Holzer, 1986. "Search Method Use by Unemployed Youth," NBER Working Papers 1859, National Bureau of Economic Research, Inc.
  8. Olof Åslund & Oskar Nordström Skans, 2010. "Will I See You at Work? Ethnic Workplace Segregation in Sweden, 1985–2002," ILR Review, Cornell University, ILR School, vol. 63(3), pages 471-493, April.
  9. Lori Beaman & Jeremy Magruder, 2012. "Who Gets the Job Referral? Evidence from a Social Networks Experiment," American Economic Review, American Economic Association, vol. 102(7), pages 3574-93, December.
  10. Bruce D. Meyer, 1988. "Unemployment Insurance And Unemployment Spells," NBER Working Papers 2546, National Bureau of Economic Research, Inc.
  11. Jovanovic, Boyan, 1979. "Job Matching and the Theory of Turnover," Journal of Political Economy, University of Chicago Press, vol. 87(5), pages 972-90, October.
  12. Harry J. Holzer, 1986. "Informal Job Search and Black Youth Unemployment," NBER Working Papers 1860, National Bureau of Economic Research, Inc.
  13. Manolis Galenianos, 2013. "Learning About Match Quality and the Use of Referrals," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 16(4), pages 668-690, October.
  14. Giorgio Topa, 2001. "Social Interactions, Local Spillovers and Unemployment," Review of Economic Studies, Oxford University Press, vol. 68(2), pages 261-295.
  15. Datcher, Linda, 1983. "The Impact of Informal Networks of Quit Behavior," The Review of Economics and Statistics, MIT Press, vol. 65(3), pages 491-95, August.
  16. Linda Datcher Loury, 2006. "Some Contacts Are More Equal than Others: Informal Networks, Job Tenure, and Wages," Journal of Labor Economics, University of Chicago Press, vol. 24(2), pages 299-318, April.
  17. Montgomery, James D, 1991. "Social Networks and Labor-Market Outcomes: Toward an Economic Analysis," American Economic Review, American Economic Association, vol. 81(5), pages 1407-18, December.
  18. Hellerstein, Judith K. & McInerney, Melissa & Neumark, David, 2008. "Measuring the Importance of Labor Market Networks," IZA Discussion Papers 3750, Institute for the Study of Labor (IZA).
  19. Frederiksen, Anders & Lange, Fabian & Kriechel, Ben, 2012. "Subjective Performance Evaluations and Employee Careers," IZA Discussion Papers 6373, Institute for the Study of Labor (IZA).
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