Labor Market Information Provision and Job FairsService Sector Female Labor Preference

Occupational Relationship Referral Substitution

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In Simple Words

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.

Male referrers in Kolkata

Fixed referral fee
Group used for comparison
Rs.60 plus up to Rs.50 performance pay
Coworker referrals about 8 percentage points higher

Laboratory selection-model estimate. Fixed fees pooled; coworker referrals rose about 8 points and relative referrals fell about 7 points. Lower bonus arm omitted.

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Research question

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.

Participants

N = 561 male adult labor market participants in Kolkata, India (407 returning referrals analyzed).

Study Design

Heckman two-step selection model evaluating changes in referrer-referral relationship categories (coworkers vs relatives) under high-stakes performance pay versus fixed-fee controls.

Results

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).

Takeaway

Offer explicit performance-indexed finder's fees to encourage current employees to source job candidates from former workplace peers rather than family ties.

Source and citation

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Read alongside the research

Plain-English glossary

Original explanations, informed by the references below. Examples are illustrations, not data from the studies above. The research text stays unchanged.

Percentage points

The difference between two percentages.

ExampleA rise from 40% to 50% is 10 percentage points. Relative to the starting value, that is a 25% increase.

Office for National Statistics · Percentages ↗Read more about percentage points →

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