Referral-Based Job Search Networks

48 Pages Posted: 20 Jun 2011

See all articles by Christian Dustmann

Christian Dustmann

University College London; Institute for Fiscal Studies (IFS); Centre for Economic Policy Research (CEPR)

Albrecht Glitz

Universitat Pompeu Fabra; IZA Institute of Labor Economics

Uta Schönberg

University of Rochester; IZA Institute of Labor Economics

Abstract

This paper develops a model and derives novel testable implications of referral-based job search networks in which employees provide employers with information about potential job market candidates that they otherwise would not have. Using unique matched employer-employee data that cover the entire workforce in one large metropolitan labor market over a 20 year period, we find strong support for the predictions of our model. We first show that firms are more likely to hire minority workers from a particular group if the existing share of workers from that group employed in the firm is higher. We then provide evidence that workers earn higher wages, and are less likely to leave their firms, if they were hired by a firm with a larger share of minority workers from their own group and are therefore more likely to have obtained the job through a referral. The effects are particularly strong at the beginning of the employment relationship and decline with tenure in the firm. These findings have important implications in suggesting that job search networks help to reduce informational deficiencies in the labor market and lead to productivity gains for workers and firms.

Keywords: networks, referrals, uncertainty

JEL Classification: J61, J63, J31

Suggested Citation

Dustmann, Christian and Glitz, Albrecht and Schönberg, Uta, Referral-Based Job Search Networks. IZA Discussion Paper No. 5777. Available at SSRN: https://ssrn.com/abstract=1867046

Christian Dustmann (Contact Author)

University College London ( email )

Gower Street
London WC1E 6BT, WC1E 6BT
United Kingdom
+44 20 7679 5832 (Phone)
+44 20 7916 2775 (Fax)

Institute for Fiscal Studies (IFS)

7 Ridgmount Street
London, WC1E 7AE
United Kingdom

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Albrecht Glitz

Universitat Pompeu Fabra ( email )

Ramon Trias Fargas, 25-27
Barcelona, E-08005
Spain

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Uta Schönberg

University of Rochester ( email )

Rochester, NY 14627
United States

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

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