Referral networks and inequality

Manolis Galenianos

No 1173, 2016 Meeting Papers from Society for Economic Dynamics

Abstract: I develop a theoretical model to study the welfare effects of using referrals in the labor market. In the model, firms use referrals to hire, workers are heterogeneous and the social network endogenous. Consistent with empirical evidence, referred workers are more likely to be hired, to receive a higher wage and to be more productive. The use of referrals exacerbates inequality among workers. Higher inequality is efficient if heterogeneity is driven by productivity differentials but is detrimental to efficiency if the probability of forming a match is weakly correlated with productivity, which is likely in the presence of discrimination.

Date: 2016
New Economics Papers: this item is included in nep-dge and nep-net
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Journal Article: Referral Networks and Inequality (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:red:sed016:1173

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