Learning Through Coworker Referrals

51 Pages Posted: 21 May 2019

See all articles by Albrecht Glitz

Albrecht Glitz

Universitat Pompeu Fabra; Barcelona School of Economics; IPEG

Rune Vejlin

Aarhus University

Abstract

In this paper, we study the role of coworker referrals for labor market outcomes. Using comprehensive Danish administrative data covering the period 1980 to 2005, we first document a strong tendency of workers to follow their former coworkers into the same establishments and provide evidence that these mobility patterns are likely driven by coworker referrals. Treating the presence of a former coworker in an establishment at the time of hiring as a proxy for a referral, we then show that referred workers initially earn 4.6 percent higher wages and are 2.3 percentage points less likely to leave their employers than workers hired through the external market. Consistent with a theoretical framework characterized by higher initial uncertainty in the external market but the possibility of subsequent learning about match-specific productivity, we show that these initial differences gradually decline as tenure increases. We structurally estimate the model using two different sets of auxiliary parameters and find that the noise of the initial signal about a worker's productivity is 14.5 percent lower in the referral market than in the external market, and that firms learn about their workers' true match-specific productivity with a probability of 48.4 percent per year. Counterfactual simulations show that average wages are 3.9 percent lower in the absence of a referral market, primarily because of lower average productivity in the external market.

Keywords: referrals, employer learning, networks, wages, turnover

JEL Classification: J31, J63, J64

Suggested Citation

Glitz, Albrecht and Vejlin, Rune, Learning Through Coworker Referrals. IZA Discussion Paper No. 12270, Available at SSRN: https://ssrn.com/abstract=3390260 or http://dx.doi.org/10.2139/ssrn.3390260

Albrecht Glitz (Contact Author)

Universitat Pompeu Fabra ( email )

Ramon Trias Fargas, 25-27
Barcelona, E-08005
Spain

Barcelona School of Economics ( email )

Carrer de Ramon Trias Fargas, 25-27
Barcelona, 08005
Spain

IPEG ( email )

Ramon Trias Fargas, 25-27
Barcelona, 08005
Spain

Rune Vejlin

Aarhus University

Nordre Ringgade 1
DK-8000 Aarhus C, 8000
Denmark

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