Employee Referral, Social Proximity and Worker Discipline: Theory and Evidence from India

40 Pages Posted: 10 Jul 2013

See all articles by Amrita Dhillon

Amrita Dhillon

University of Warwick - Department of Economics

Vegard Iversen

University of Manchester

Gaute Torsvik

University of Bergen - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Date Written: June 30, 2013

Abstract

We study an important mechanism underlying employee referrals into informal low skilled jobs in developing countries. Employers can exploit social preferences between employee referees and potential workers to improve discipline. The profitability of using referrals increases with referee stakes in the firm, and, in most cases, with the strength of the social tie between the referee and the new recruit. We provide an empirical counterpart to these results using primary data covering low- and unskilled migrants in India. Consistent with the theoretical predictions, we find a high prevalence of workplace referral and strong kinship ties between referees and new recruits. Finally, workplace intermediaries are different from and typically in more ‘prestigious’ jobs than those recruited.

Keywords: networks, low- and un-skilled jobs, India, moral hazard, employee referrals, efficiency wages, referee incentives, strength of ties

JEL Classification: J410, J310, D820, D860, O120, O170

Suggested Citation

Dhillon, Amrita and Iversen, Vegard and Torsvik, Gaute, Employee Referral, Social Proximity and Worker Discipline: Theory and Evidence from India (June 30, 2013). CESifo Working Paper Series No. 4309. Available at SSRN: https://ssrn.com/abstract=2291894

Amrita Dhillon

University of Warwick - Department of Economics ( email )

Coventry CV4 7AL
United Kingdom
+44 1 20 352 3032 (Phone)

Vegard Iversen

University of Manchester ( email )

Gaute Torsvik (Contact Author)

University of Bergen - Department of Economics ( email )

Fosswinckelsgt. 6
N-5007 Bergen, 5007
Norway
55589225 (Phone)
55589210 (Fax)

CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Poschinger Str. 5
Munich, DE-81679
Germany

Register to save articles to
your library

Register

Paper statistics

Downloads
59
Abstract Views
439
rank
367,688
PlumX Metrics