Working for References

46 Pages Posted: 8 Feb 2021 Last revised: 24 May 2021

See all articles by Samuel Häfner

Samuel Häfner

Web3 Foundation; University of St. Gallen

Curtis R. Taylor

Duke University - Department of Economics

Date Written: May 21, 2021

Abstract

We analyze incentive and welfare consequences of non-verifiable job references in a large economy marked by: moral hazard, limited liability, exogenous job separation, and structural unemployment. In the firm-optimal equilibrium, employers provide references whenever production is successful and workers holding references are hired with certainty in the ensuing period. Compared to a setting without references: The bonus-contract offers are lower, yet the workers’ equilibrium effort is higher. Profits and welfare are higher, yet aggregate worker welfare is lower. Also, firms do not fully internalize the incentive effect of references and could typically increase profits and welfare by jointly raising bonuses.

Keywords: Bonus Contract, General Equilibrium, Job History, Moral Hazard, Referrals, Unemployment

JEL Classification: C73, D61, E24, J33

Suggested Citation

Häfner, Samuel and Taylor, Curtis R., Working for References (May 21, 2021). Available at SSRN: https://ssrn.com/abstract=3746426 or http://dx.doi.org/10.2139/ssrn.3746426

Samuel Häfner (Contact Author)

Web3 Foundation

Zug
Switzerland

University of St. Gallen ( email )

Varnbuelstr. 14
Saint Gallen, St. Gallen CH-9000
Switzerland

Curtis R. Taylor

Duke University - Department of Economics ( email )

213 Social Sciences Building
Box 90097
Durham, NC 27708-0204
United States
919-660-1827 (Phone)
919-684-8974 (Fax)

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