Occupational Relationship Referral Substitution
RCTClinical Trial
In informal labor markets, employees naturally default to referring family members, which undermines skill-based hiring unless incentive structures explicitly encourage shifting to professional contacts.
Picture this
Think of a mechanic who needs to recommend someone to fix a complex engine. Without an incentive tied to job quality, the mechanic recommends a cousin needing extra cash; when a large performance bonus is introduced, the mechanic switches to recommending a skilled former shop colleague.
What the evidence says
High-stakes performance pay caused a 7.9 percentage point increase in referring coworkers (p < 0.05, from a 13.0% baseline) and a 6.9 to 7.2 percentage point decrease in referring relatives (p < 0.10, from a 14.8% baseline).
- Who was studied
- N = 561 male adult labor market participants in Kolkata, India (407 returning referrals analyzed).
- How
- Heckman two-step selection model evaluating changes in referrer-referral relationship categories (coworkers vs relatives) under high-stakes performance pay versus fixed-fee controls.
What to do
Offer explicit performance-indexed finder's fees to encourage current employees to source job candidates from former workplace peers rather than family ties.
From the source
"Individuals assigned to the cognitive high-stakes performance pay treatment were almost 8 percentage points more likely to refer a coworker... The high-stakes group was also less likely to refer a relative than the fixed fee groups."
468 Job Referrals in India AER Dec12.pdf