TY  - RPRT
        AU  - Dariel, Aurelie
AU  - Riedl, Arno
AU  - Siegenthaler, Simon
        TI  - Hiring through Referrals in a Labor Market with Adverse Selection
        PY  - 2019/Apr/
        PB  - Institute of Labor Economics (IZA)
        CY  - Bonn
        T2  - IZA Discussion Paper
        IS  - 12287
        UR  - https://www.iza.org/index.php/publications/dp12287
        AB  - Information asymmetries can prevent markets from operating efficiently. An important example is the labor market, where employers face uncertainty about the productivity of job candidates. We examine theoretically and with laboratory experiments three key questions related to hiring via referrals when employees have private information about their productivity. First, do firms use employee referrals when there are social ties between a current employee and a future employee?
Second, does the existence of social ties and hiring through employee referrals indeed alleviate adverse selection relative to when social ties do not exist? Third, does the existence of social ties have spill-over effects on wages and hiring in competitive labor markets? The answers to all three questions are affirmative. However, despite the identified positive effect of employee referrals, hiring decisions fall short of the (second-best) efficient outcome. We identify risk aversion as a potential reason for this.
        KW  - employee referrals
KW  - labor market
KW  - adverse selection
KW  - social networks
        ER  -