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What Do Employee Referral Programs Do?

Author

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  • Heinz, Matthias
  • Friebel, Guido
  • Hoffman, Mitchell
  • Zubanov, Nick

Abstract

Employee referral programs (ERPs) are randomly introduced in a grocery chain. Larger bonuses increase referrals and decrease referral quality, though the increase in referrals is modest. Still, ERPs are highly profitable, partly, because referrals stay longer than non-referrals, but, mainly, because non-referrals stay longer in treated stores than in control stores. In a post-RCT firmwide ERP rollout, referral rates remain low for grocery jobs, but are high for non-grocery jobs, which are perceived as more attractive. Our results (1) are consistent with referral-making being driven by money and altruism toward friends; (2) show that ERPs can have substantial benefits beyond generating referrals. The most-supported mechanism for (2) is that workers value being involved in hiring.

Suggested Citation

  • Heinz, Matthias & Friebel, Guido & Hoffman, Mitchell & Zubanov, Nick, 2019. "What Do Employee Referral Programs Do?," CEPR Discussion Papers 13770, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:13770
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    References listed on IDEAS

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    2. Meta Brown & Elizabeth Setren & Giorgio Topa, 2016. "Do Informal Referrals Lead to Better Matches? Evidence from a Firm's Employee Referral System," Journal of Labor Economics, University of Chicago Press, vol. 34(1), pages 161-209.
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    5. Amanda Pallais & Emily Glassberg Sands, 2016. "Why the Referential Treatment? Evidence from Field Experiments on Referrals," Journal of Political Economy, University of Chicago Press, vol. 124(6), pages 1793-1828.
    6. Blatter, Marc & Muehlemann, Samuel & Schenker, Samuel, 2012. "The costs of hiring skilled workers," European Economic Review, Elsevier, vol. 56(1), pages 20-35.
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    Citations

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    Cited by:

    1. Wei Cheng & Patrick Carlin & Joanna Carroll & Sumedha Gupta & Felipe Lozano Rojas & Laura Montenovo & Thuy D. Nguyen & Ian M. Schmutte & Olga Scrivner & Kosali I. Simon & Coady Wing & Bruce Weinberg, 2020. "Back to Business and (Re)employing Workers? Labor Market Activity During State COVID-19 Reopenings," NBER Working Papers 27419, National Bureau of Economic Research, Inc.
    2. Guido Friebel & Matthias Heinz & Nikolay Zubanov, 2022. "Middle Managers, Personnel Turnover, and Performance: A Long‐Term Field Experiment in a Retail Chain," Management Science, INFORMS, vol. 68(1), pages 211-229, January.
    3. Emre Ekinci, 2022. "Monetary rewards in employee referral programs," Manchester School, University of Manchester, vol. 90(1), pages 35-58, January.
    4. Sabrina Di Addario & Zhexin Feng & Michel Serafinelli, 2024. "Inventors’ Coworker Networks and Innovation," CESifo Working Paper Series 11432, CESifo.
    5. Dhillon, Amrita & Peeters, Ronald & Bartrum, Oliver & Yüksel, Ayşe Müge, 2020. "Hiring an employee’s friends is good for business: Overcoming moral hazard with social networks," Labour Economics, Elsevier, vol. 67(C).
    6. Benjamin Lester & David A. Rivers & Giorgio Topa, 2021. "The Heterogeneous Impact of Referrals on Labor Market Outcomes," Working Papers 21-34, Federal Reserve Bank of Philadelphia.
    7. Di Addario, Sabrina & Feng, Zhexin & Serafinelli, Michel, 2024. "Inventors' Coworker Networks and Innovation," IZA Discussion Papers 17398, Institute of Labor Economics (IZA).
    8. Moon, Ji-Woong, 2023. "Strategic referrals and on-the-job search equilibrium," Journal of Monetary Economics, Elsevier, vol. 134(C), pages 135-151.

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    More about this item

    Keywords

    Referrals; Employee referral programs; Hiring; Respect; Turnover; altruism;
    All these keywords.

    JEL classification:

    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • M51 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Firm Employment Decisions; Promotions
    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General
    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs
    • D90 - Microeconomics - - Micro-Based Behavioral Economics - - - General

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