Explaining U-shape of the Referral Hiring Pattern in a Search Model with Heterogeneous Workers
Posted: 8 Nov 2015
Date Written: November 2015
This paper presents a search model with heterogeneous workers, social networks and endogenous search intensity. There are three job search channels: costly formal applications and two costless informal channels – through family and professional networks. Our model explains a U-shape referral hiring pattern observed in empirical studies and a strong selection of workers on productivity across the three channels. Moreover, combining family and professional referrals into one informal channel may generate a spurious result of wage premiums (penalties) if high (low) productivity workers are dominating in the empirical data and their productivity is not fully observable to the econometrician.
Keywords: Family contacts; Professional networks; U-shape; Referral puzzle; Wage premiums; Wage penalties
JEL Classification: J23; J31; J38; J64
Suggested Citation: Suggested Citation