How Much Do Employers Learn
from Referrals?
Joshua C. Pinkston
University of Louisville
February, 2010
Abstract: This paper tests the
hypothesis that referrals from various sources provide employers with more
information about job applicants than they would have without a referral. I use data that contain information on two
workers in the same job, allowing me to cancel out differences in job and firm
characteristics and control for the possibility that workers with referrals
from different sources (or no referral at all) might sort into jobs that put
different weights on individual performance.
The estimation results are consistent with referrals from current
employees, as well as from other firms or labor unions, providing employers with
more information than they would have otherwise. Additionally, it appears as though hiring
through friends or relatives of the employer may involve some favoritism that
results in employers either collecting less information than they would
otherwise or ignoring information. I
find no evidence that referrals from community organizations or other sources have
any effect.
JEL Codes: J6, M51, J31, D83
Keywords: Referrals, recruiting methods, labor market
information