62 Pages Posted: 19 Apr 2013 Last revised: 25 Jan 2015
Date Written: December 11, 2013
Using unique personnel data from nine large firms in three industries, we document five consistent facts about hiring through employee referral networks. First, referred applicants have similar skill characteristics to non-referred applicants, both observable-to-the-firm (e.g., schooling) and unobservable-to-the-firm (e.g., cognitive and non-cognitive ability), but are more likely to be hired, more likely to accept job offers, and have higher pre-job assessment scores. Second, referred workers have similar skill characteristics to non-referred workers. Third, referred workers are less likely to quit and are more productive, but only on rare high-impact performance metrics; on most standard non-rare performance metrics, referred and non-referred workers perform similarly. Fourth, referred workers have slightly higher wages, but yield substantially higher profits per worker. Fifth, workers who make referrals have higher productivity than others, are less likely to quit after making a referral, and refer those like themselves on particular productivity metrics. Differences between referred and non-referred workers tend to be larger at low-tenure levels; for young, Black, and Hispanic workers; and in strong labor markets. No leading class of theories can alone account for all or most of these results, leading us to suggest several theoretical extensions.
Keywords: Referrals, productivity, worker selection, innovation, patents, cognitive ability, non-cognitive ability, job testing
JEL Classification: J24, M51, J30, O32, J63
Suggested Citation: Suggested Citation
Burks, Stephen V. and Cowgill, Bo and Hoffman, Mitchell and Housman, Michael Gene, The Facts About Referrals: Toward an Understanding of Employee Referral Networks (December 11, 2013). Available at SSRN: https://ssrn.com/abstract=2253738 or http://dx.doi.org/10.2139/ssrn.2253738