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

57 Pages Posted: 24 May 2014

See all articles by Meta Brown

Meta Brown

Federal Reserve Bank of New York

Elizabeth Setren

Massachusetts Institute of Technology (MIT)

Giorgio Topa

Federal Reserve Bank of New York

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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.

Keywords: referrals, human resources, turnover, wage trajectory

JEL Classification: J30, J63, J64

Suggested Citation

Brown, Meta and Setren, Elizabeth and Topa, Giorgio, Do Informal Referrals Lead to Better Matches? Evidence from a Firm's Employee Referral System. IZA Discussion Paper No. 8175. Available at SSRN: https://ssrn.com/abstract=2441471

Meta Brown (Contact Author)

Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States

Elizabeth Setren

Massachusetts Institute of Technology (MIT) ( email )

77 Massachusetts Avenue
50 Memorial Drive
Cambridge, MA 02139-4307
United States

Giorgio Topa

Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States

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