Strategic referrals and on-the-job search equilibrium

Ji-Woong Moon

Journal of Monetary Economics, 2023, vol. 134, issue C, 135-151

Abstract: Referrals are prevalent in the U.S. labor market. To understand their aggregate effects, this paper studies an equilibrium model of on-the-job search and job referrals. In the model, referrals are modeled as a strategic interaction between a referrer and a firm. The equilibrium model shows that referrals benefit job searchers whose outside option is above a threshold. I support this prediction by showing that the referral wage premium exists only for employed job searchers. Quantitatively, referrals contribute to the total output by 3.93% through transmitting information and reducing search costs. The information transmission explains about 28% of the effects.

Keywords: Referral; Directed search; Information design; On-the-job search (search for similar items in EconPapers)
JEL-codes: D83 E24 J60 J64 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:moneco:v:134:y:2023:i:c:p:135-151

DOI: 10.1016/j.jmoneco.2022.12.003

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