Referral and Job Performance: Evidence from the Ghana Colonial Army

Employee referral is often thought to exist because it conveys positive information about unobserved worker quality or helps in monitoring workers. Using data compiled from army archives, we test whether the referral system in use in the British colonial army in Ghana is associated with higher quality or effort of new recruits. We find that it was not: referred recruits were more likely than unreferred recruits to desert or be dismissed as "inefficient" or "unfit" or for "misconduct." We find instead evidence of referee opportunism. The fact that referred recruits have better observed characteristics at the time of recruitment suggests that army recruiters may have been aware of this problem and sought to compensate for lower-than-average unobserved quality.