Employers' social contacts and their hiring behavior in a factorial survey.

ABSTRACT

We investigate whether referrals from employers' business and professional contacts matter in the hiring process. Additionally, we examine whether the effect of referrals varies depending on (1) the signaling role of education during the hiring process, and (2) applicants' level of education. Based on a combination of a factorial survey and an experimental design with a sample of English employers, we measure the effect of referrals on employers' hiring assessments. We find only weak evidence that referred applicants are considered more trainable than otherwise identical applicants that do not have a tie with the employer. More detailed analyses show that referrals do matter for employers who consider education a noisy signal, in line with the argument that informal recruitment can represent a strategy for employers to compensate for poor signaling. Referrals are especially beneficial for highly educated applicants, probably because employers need some guarantee against possible wage or turnover costs.