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

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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 for the Study of Labor (IZA).
  • Handle: RePEc:iza:izadps:dp8175
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    References listed on IDEAS

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    Cited by:

    1. 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.
    2. Deepti Goel & Kevin Lang, 2009. "Social Ties and the Job Search of Recent Immigrants," NBER Working Papers 15186, National Bureau of Economic Research, Inc.
    3. Hensvik, Lena & Nordström Skans, Oskar, 2013. "Networks and youth labor market entry," Working Paper Series 2013:23, IFAU - Institute for Evaluation of Labour Market and Education Policy.
    4. Eliason, Marcus & Hensvik, Lena & Kramarz, Francis & Nordström Skans, Oskar, 2017. "The causal impact of social Connections on firms' outcomes," Working Paper Series 2017:11, IFAU - Institute for Evaluation of Labour Market and Education Policy.
    5. Rebien, Martina & Stops, Michael & Zaharieva, Anna, 2017. "Formal search and referrals from a firm's perspective," IAB Discussion Paper 201733, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany].
    6. Hellerstein, Judith K. & Kutzbach, Mark J. & Neumark, David, 2014. "Do labor market networks have an important spatial dimension?," Journal of Urban Economics, Elsevier, vol. 79(C), pages 39-58.
    7. repec:eee:gamebe:v:106:y:2017:i:c:p:329-342 is not listed on IDEAS
    8. Glitz, Albrecht, 2017. "Coworker networks in the labour market," Labour Economics, Elsevier, vol. 44(C), pages 218-230.
    9. Gee, Laura K. & Jones, Jason J. & Fariss, Christopher J. & Burke, Moira & Fowler, James H., 2017. "The paradox of weak ties in 55 countries," Journal of Economic Behavior & Organization, Elsevier, vol. 133(C), pages 362-372.
    10. Friebel, Guido & Lalanne, Marie & Richter, Bernard & Schwardmann, Peter & Seabright, Paul, 2017. "Women form social networks more selectively and less opportunistically than men," SAFE Working Paper Series 168, Research Center SAFE - Sustainable Architecture for Finance in Europe, Goethe University Frankfurt.
    11. repec:iza:izawol:journl:2017:n:369 is not listed on IDEAS
    12. Lena Hensvik & Oskar Nordström Skans, 2016. "Social Networks, Employee Selection, and Labor Market Outcomes," Journal of Labor Economics, University of Chicago Press, vol. 34(4), pages 825-867.
    13. Saygin, Perihan Ozge & Weber, Andrea & Weynandt, Michèle, 2014. "Coworkers, Networks, and Job Search Outcomes," IZA Discussion Papers 8174, Institute for the Study of Labor (IZA).
    14. Ian Schmutte, 2016. "How do social networks affect labor markets?," IZA World of Labor, Institute for the Study of Labor (IZA), pages 304-304, October.
    15. Amanda Pallais & Emily Glassberg Sands, 2015. "Why the Referential Treatment: Evidence from Field Experiments on Referrals," NBER Working Papers 21357, National Bureau of Economic Research, Inc.
    16. Allouch, Nizar, 2017. "The cost of segregation in (social) networks," Games and Economic Behavior, Elsevier, vol. 106(C), pages 329-342.
    17. Judith K. Hellerstein & Mark J. Kutzbach & David Neumark, 2015. "Labor Market Networks and Recovery from Mass Layoffs: Evidence from the Great Recession Period," NBER Working Papers 21262, National Bureau of Economic Research, Inc.
    18. Yann Bramoull'e & Kenan Huremovi'c, 2017. "Promotion through Connections: Favors or Information?," Papers 1708.07723, arXiv.org.
    19. Judith K. Hellerstein & Mark J. Kutzbach & David Neumark, 2015. "Labor Market Networks and Recovery from Mass Layoffs Before, During, and After the Great Recession," Working Papers 15-14, Center for Economic Studies, U.S. Census Bureau.
    20. Matthew O. Jackson & Brian W. Rogers & Yves Zenou, 2016. "Networks: An Economic Perspective," Papers 1608.07901, arXiv.org.
    21. Stupnytska, Yuliia & Zaharieva, Anna, 2015. "Explaining U-shape of the referral hiring pattern in a search model with heterogeneous workers," Journal of Economic Behavior & Organization, Elsevier, vol. 119(C), pages 211-233.
    22. Stupnytska, Yuliia & Zaharieva, Anna, 2015. "Explaining the U-Shape of the Referral Hiring Pattern in a Search Model with Heterogeneous Workers," Center for Mathematical Economics Working Papers 511, Center for Mathematical Economics, Bielefeld University.

    More about this item

    Keywords

    referrals; human resources; turnover; wage trajectory;

    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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