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

57 Pages Posted: 24 May 2014  

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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