Granovetter, M. (1995): Getting a job: A study of contacts and careers. University of Chicago Press, Chicago.
This highly cited study examined how 282 men in the United States found their jobs. It showed that most jobs were found via social networks, and that more jobs were found through distant acquaintainces (“loose ties”) rather than close friends. One explanation that is offered involves disjoint information sets: compared to close friends, distant connections are more likely to be aware of jobs that you don’t already know about.
Burks, Stephen V., Bo Cowgill, Mitchell Hoffman, and Michael Housman. “The Value of Hiring through Employee Referrals” Quarterly Journal of Economics 2015 130: 805-839
Empirically assess the benefit to firms of hiring through employee referrals using personnel data from nine large firms in three industries (call centers, trucking, and high-tech). Compared to nonreferred applicants, referred applicants are more likely to be hired and more likely to accept offers, even though referrals and nonreferrals have similar skill characteristics.
Pallais Amanda and Emily Sands. Why the Referential Treatment? Evidence from Field Experiments on Referrals. Journal of Political Economy 124, no. 6 (December 2016): 1793-1828.
Examines why referred workers are more likely to be hired than nonreferred workers in three field experiments in an online labor market. Results show that referrals contain positive information about worker performance and persistence that is not contained in workers’ observable characteristics, and referrals perform particularly well when working directly with their referrers.
Gee, Laura Katherine, Jason J. Jones and Moira Burke. “Social Networks and Labor Markets: How Strong Ties Relate to Job Finding on Facebook's Social Network” Journal of Labor Economics 35, no. 2 (April 2017): 485-518.
Using 6 million Facebook users’ data, confirms Granovetter's result that most people are helped through one of their numerous weak ties. At the same time, however a single stronger tie is significantly more valuable than a single weak tie. Thus, Granovetter’s result, while correct, has been widely misinterpreted: people find more jobs via acquaintances than friends for the sole reason that people have more acquaintances than friends.
Barr, Tavis, Raicho Bojilov and Lalith Munasinghe, "Referrals and Search Efficiency: Who Learns What and When?," Journal of Labor Economics 37, no. 4 (October 2019): 1267-1300.
Using data from a call center, the authors show that referrals help employers attract applicants of superior performance. However, performance differences between referred and nonreferred workers diminish with tenure through selective turnover (less-productive workers are less likely to stay with the firm). Thus, the main advantage of referred applicants is that they have been pre-screened for performance-relevant characteristics before they start work.
DeVaro, Jed, and Hodaka Morita. “Internal Promotion and External Recruitment: A Theoretical and Empirical Analysis”Journal of Labor Economics 31(2), April 2013, 227- 269.
Presents a theoretical and empirical analysis of internal promotion versus external recruitment, using a job-assignment model involving competing firms with heterogeneous productivities and two-level job hierarchies with one managerial position.
Beaman, Lori and Jeremy Magruder, (2012). “Who Gets the Job Referral? Evidence from a Social Networks Experiment,” American Economic Review, 102(7):3574–3593.
Conducts recruitment experiment by allowing subjects to refer actual network members for casual jobs as experimental subjects under exogenously varied incentive contracts in Kolkata, India. Shows that high ability workers have useful information about the abilities of network members. However, social networks provides incentives to refer less qualified workers as well.
Brown, Meta., Elizabeth Setren and Giorgio Topa, (2013). “Do Informal Referrals Lead to Better Matches? Evidence from a Firm’s Employee Referral System,” Journal of Labor Economics, 34(1):161-209.
Investigates the hiring process and the relationships among referrals, match quality, wage trajectories, and turnover for a single US corporation and test various predictions of theoretical models of labor market referrals. Finds that referred candidates are more likely to be hired with an initial wage advantage, which dissipates over time, and have longer tenure in the firm.
Dustmann, Christian., Albrecht Glitz and Uta Schönbergand Herbert Brücker, (2015). “Referral-based Job Search Networks,” The Review of Economics Studies, 83(2):514-546.
Comprehensive matched employer–employee data covering the entire workforce in one large metropolitan labor market combined with unique survey data linked to administrative records provides evidence that workers earn higher wages and are less inclined to leave their firms if they have obtained their job through a referral.
Agrawal, Ajay., Nicola Lacetera and Elizabeth Lyons, (2016). “Does standardized information in online markets disproportionately benefit job applicants from less developed countries?” Journal of International Economics, 103:1-12.
Examines trade in services between employers from developed countries (DCs) and workers from less developed countries (LDCs) on an online platform for contract labor. Evidence suggests that informational limits to trade may be addressed through a variety of market design approaches.
Beaman, Lori., Niall Keleher and Jeremy Magruder, (2017). “Do Job Networks Disadvantage Women? Evidence from a Recruitment Experiment in Malawi,” Journal of Labor Economics, 36(1):121-157.
Examines at men’s and women’s referral choices under different incentives and constraints through a recruitment drive for a firm in Malawi. Finds that men systematically refer few women, despite being able to refer qualified women when explicitly asked for female candidates.
Heath, Rachel, (2018). “Why Do Firms hire using Referrals? Evidence from Bangladeshi Garment Factories,” Journal of Political Economy 126, no. 4 (August 2018): 1691-1746
Develops a model in which referrals relax a limited liability constraint by allowing the firm to punish the referral provider if the recipient has low output. Tests the model’s predictions using household survey data collected in Bangladesh and rejects that referrals help firms select unobservably good workers or are solely a nonwage benefit to providers.
Cullen, Zoe B. and Ricardo Perez-Truglia. 2023 The Old Boys' Club: Schmoozing and the Gender Gap American Economic Review 113 (7): 1703-40
Shows that using networks to make promotion decisions can disadvantage women. Using the rotation of managers within a large company, the authors show that employees’ social interactions with their managers can be advantageous for their careers and contribute to the gender pay gap. Male employees assigned to male managers were promoted faster in the following years than male employees assigned to female managers; female employees, on the contrary, had the same career progression regardless of their managers’ gender. These differences were not accompanied by any differences in effort or performance, and they explain a third of the gender gap in promotions at this firm. Much of the benefit male workers receive from male managers appears to be connected to socialization—specifically taking smoking breaks together.
Friebel, Guido, Matthias Heinz, Mitchell Hoffman, and Nick Zubanov. 2023 What Do Employee Referral Programs Do? A Firm-level Randomized Controlled Trial. Journal of Political Economy, 121(3).
Employee referral programs (ERPs) are randomly introduced in a grocery chain. Overall, ERPs reduce attrition by roughly 15% and reduce labor costs by almost 3%. This is mainly because all workers (not just the referred ones) stay longer in treated than control stores, even in stores where no referrals are made. The most promising explanation of these indirect effects is that workers value being involved in hiring.
Miller, Conrad and Ian Schmutte 2021 “The Dynamics of Referral Hiring and Racial Inequality: Evidence from Brazil” unpublished manuscript, UC Berkeley.
Using administrative data from Brazil, the authors show that firm founders have a strong tendency to hire from their own race. As their businesses grow, however, the racial mix of hires converges between companies with Black and White founders. Racial differences in dismissal rates also converge. The authors argue that these patterns can be explained using a job search model in which referrals play an important role, where referral networks are racially segregated, and where employers rely less on referral networks as their businesses grow.
Michelman, Valerie, Joseph Price, and Seth D. Zimmerman Old Boys’ Clubs and Upward Mobility Among the Educational Elite” Quarterly Journal of Economics, Volume 137, Issue 2, May 2022, Pages 845–909.
The authors use random variation in room assignment for Harvard students in the 1920s and 1930s to study whether exposure to high-status peers expands gaps in a number of outcomes, including finance careers by high school type, with large positive effects for private school students and zero or negative effects for others.
Barwick, Panle Jia, Yanyan Liu, Eleonora Patacchini and Qi Wu 2023 Information, Mobile Communication, and Referral Effects American Economic Review 113(5): 1170–1207
This paper uses the universe of cellphone records from a Chinese telecommunication provider to examine the role of information exchange in urban labor markets. They provide the first direct evidence of increased communication among referral pairs around job changes. Information provided by social contacts thus appears to mitigate information asymmetry and to improve labor market performance.
Staiger, Matthew, 2022. The Intergenerational Transmission of Employers and the Earnings of Young Workers unpublished paper, Harvard University.
The author uses employer-employee linked data to study one important type of connection: jobs obtained at a parent’s employer. He finds that 29 percent of individuals work for a parent’s employer at least once by age 30. Working for a parent’s employer increases initial earnings by 19 percent, mostly because parents use their connections to provide access to higher-paying firms. The findings raise the possibility that connections to firms through one’s social network could be an important determinant of intergenerational mobility.
Evsyukova, Yulia , Wladislaw Mill, and Felix Rusche 2023 LinkedOut! Discrimination in Job Network Formation unpublished paper, University of Mannheim.
Using a two-stage field experiment with 400+ fictitious LinkedIn profiles, the authors study the effect of discrimination Black individuals’ job network formation across the U.S. Applying an algorithm to vary race via A.I.-generated images, they find that (compared to identical Black users) White users acquire networks that at 13% larger, because their connection requests are more likely to be accepted. Data from users’ CVs reveals that contrary to expert predictions, discrimination is very widespread, particularly among women and younger users.
DeVaro, Jed. (2016) “Internal hiring or external recruitment?” IZA World of Labor
Summarizes the literature on the advantages and disadvantages of hire from within versus outside the firm. Internal hiring should be preferred to external hiring when knowledge and skills specific to the firm are important, when promotions are crucial for motivating current workers, when the costs of a hiring mistake are particularly large, and when an additional vacancy (created when a worker switches jobs internally) is not too costly.
Benson, Alan Danielle Li, and Kelly Shue. “Promotions and the Peter Principle” The Quarterly Journal of Economics, Volume 134, Issue 4, November 2019, Pages 2085–2134.
The best worker is not always the best candidate for manager. In these cases, do firms promote the best potential manager or the best worker in their current job? Using microdata on the performance of sales workers at 131 firms, the authors find evidence consistent with the Peter Principle, which proposes that firms prioritize current job performance in promotion decisions at the expense of indicators of managerial potential. The authors estimate that this practice is quite costly to firms, and conclude that either (a) firms are making inefficient promotion decisions or (b) firms place a high priority on using promotions to as a financial reward for good work performance.
Using data from commissioned retail salespeople and their managers, the author show that internally-hired workers perform better. While greater firm-specific skills and contextual learning are possible explanations for this gap, the authors show that the main explanation is differential retention: high performing internal hires are very unlikely to quit.
Lochner, Benjamin, Christian Merkl, Heiko Stüber, and Nicole Gürtzgen. 2020 “Recruiting Intensity and Hiring Practices: Cross-Sectional and Time-Series Evidence” IZA discussion No. 13678.
How do firms change their recruiting methods when they need to hire more workers? This paper shows that firms that need to grow rapidly post more vacancies, search more intensely, and reduce their standards for worker quality.