Employee referrals as a screening device

Abstract

This article develops a career‐concerns model to examine the screening function of employee referrals. First, I show that employees' reputational concerns provide them with an incentive to refer high‐ability applicants. This result explains how firms that offer fixed payments, rather than bonuses contingent on the referral's posthire performance, can elicit high‐ability referrals from their employees. Second, I consider the promotion competition as a potential mechanism that creates a conflict of interest between a firm and its employees concerning referral hiring. I show that referrals may still serve a screening function even when the promotion competition distorts employees' referral decisions.

Monetary rewards in employee referral programs

“…Ekinci (2016) develops a career‐concerns model to explain why some firms use fixed fees in their referral programs. In his setup, a referral provides information not only about the applicant but also about the referring employee.…”

“…Notably, neither of these models explains why the employees provide good referrals, and the key assumption in both models is that the incentives of the current employee are perfectly aligned with those of the firm regarding hiring decisions. Ekinci (2016) departs from the earlier literature by focusing on the employee’s reputational concerns. In particular, he shows that even in the absence of assortative matching, the employee’s career‐concern incentives lead to high‐ability referrals.…”

Decomposition of co-worker wage gains

“…One group of such explanations is related to the mitigation of the employers' monitoring costs (Bartus, 2001;Kugler, 2003). Referrers can affect the performance of the newly hired workers both directly-by voluntarily monitoring their effort (Ekinci, 2016;Saloner, 1985;Smith, 2005)-and indirectly, if the applicants increase their productivity to compensate the referrers' favor (Smith, 2005). Also, referrers might have an important role in the integration of the workforce, as their presence might support smooth knowledge sharing and better cooperation at work (Castilla, 2005;Fernandez et al, 2000).…”

Using your ties to get a worse job? The differential effects of social networks on quality of employment in Colombia

“…Protected workers have privileged access to information on new opportunities through the use of "good" relationships with employees or independents who can contribute to the success of the business. Thus, the networks of these workers can be considered as a social means to facilitate the flow of specific informations concerning jobs or ideas (Granovetter 1973(Granovetter , [1974 1995; Beaman and Magruder 2012), and help employers to select workers (Ekinci 2016;Hensvik and Skans 2016). In the end, the relationships of workers in this group can be understood as opportunity networks insofar as their use should lead to a better job.…”