Learning About Match Quality and the Use of Referrals

Manolis Galenianos

Review of Economic Dynamics, 2013, vol. 16, issue 4, 668-690

Abstract: The firm's decision to use referrals as a hiring method is studied in a theoretical model of the labor market. The labor market is characterized by search frictions and uncertain quality of the match between a worker and a job. Using referrals increases the arrival rate of applicants and provides more accurate signals regarding a worker's suitability for the job. Consistent with the data, referred workers are predicted to have higher wage, higher productivity and lower separation rates and these differentials decline with tenure. The model is extended by introducing heterogeneity in firm productivity and allowing the endogenous determination of signal accuracy. High productivity firms are predicted to invest more in increasing signal accuracy and use referrals to a lesser extent. (Copyright: Elsevier)

Keywords: Seach; matching; referrals, learning (search for similar items in EconPapers)
JEL-codes: J0 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (61)

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DOI: 10.1016/j.red.2012.11.005

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