Why Personal Ties (Still) Matter: Referrals and Congestion

Felix Mylius

Cambridge Working Papers in Economics from Faculty of Economics, University of Cambridge

Abstract: The internet has reduced search costs significantly, making it much easier to apply for a large number of jobs. In spite of that, the share of jobs found through personal contacts has remained stable over the past decades. My theoretical framework explores a new channel that makes referred candidates favorable for firms: a higher likelihood to accept a job offer. This trait becomes particularly advantageous whenever firms face large uncertainty over whether their candidates would accept their job offer. As we see, if search barriers vanish and workers apply to more firms, a referred candidate expects to face more competitors. On the other hand, with more applications being sent out, workers are, on average, less interested in each firm they apply to, which makes referred candidates stand out more. This means the chances of getting a job offer through a referral can increase if competing workers send out more applications.

Keywords: Matching theory; networks; winner's curse; informal labor market (search for similar items in EconPapers)
JEL-codes: C78 D83 D85 J46 (search for similar items in EconPapers)
Date: 2023-08-07
New Economics Papers: this item is included in nep-lma, nep-mic, nep-net and nep-soc
Note: fjm58
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Persistent link: https://EconPapers.repec.org/RePEc:cam:camdae:2356

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