Information Channels in Labor Markets. On the Resilience of Referral Hiring

54 Pages Posted: 31 Mar 2005

See all articles by Alessandra Casella

Alessandra Casella

Columbia University - Graduate School of Arts and Sciences, Department of Economics; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Nobuyuki Hanaki

Osaka University - Institute of Social and Economic Research

Multiple version iconThere are 2 versions of this paper

Date Written: March 2005

Abstract

Economists and sociologists disagree over markets' potential to assume functions typically performed by networks of personal connections, first among them the transmission of information. This paper begins from a model of labor markets where social ties are stronger between similar individuals and firms employing productive workers prefer to rely on personal referrals than to hire on the anonymous market (Montgomery (1991). However, we allow workers in the market to engage in a costly action that can signal their high productivity, and ask whether the possibility of signaling reduces the reliance on the network. We find that the network is remarkably resilient. To be effective signaling must fulfill two contradictory requirements: unless the signal is extremely precise, it must be expensive or it is not informative; but it must be cheap, or the network can undercut it.

Keywords: Networks, Signaling, Referral hiring, Referral premium

JEL Classification: A14, J31, J41, D83

Suggested Citation

Casella, Alessandra and Hanaki, Nobuyuki, Information Channels in Labor Markets. On the Resilience of Referral Hiring (March 2005). Available at SSRN: https://ssrn.com/abstract=687723 or http://dx.doi.org/10.2139/ssrn.687723

Alessandra Casella (Contact Author)

Columbia University - Graduate School of Arts and Sciences, Department of Economics ( email )

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National Bureau of Economic Research (NBER)

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Nobuyuki Hanaki

Osaka University - Institute of Social and Economic Research ( email )

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