Referral Quality Incentive Gap in Job Networks
RCTClinical Trial
Informal social job networks are ubiquitous in low-income labor markets, but unrewarded recommenders often prioritize social favoritism over worker quality, generating hiring inefficiencies for employers.
Picture this
Asking an existing employee to recommend a candidate without a performance reward is like asking someone to pick a restaurant for a group without caring about food quality; the referrer suggests a friend regardless of merit, whereas adding a performance bonus forces them to select the most capable candidate available.
What the evidence says
Under standard unincentivized conditions, male recommenders do not systematically refer the highest-quality candidates from their social networks; offering explicit financial performance incentives significantly increases the ability and test scores of referred job seekers.
- Who was studied
- N = 215 urban Malawian male job seekers paired with qualitative HR manager interviews across employer sectors in Lilongwe, Malawi.
- How
- Literature synthesis of referral experiments (Beaman, Keleher, and Magruder 2018) integrated with experimental IV tracking of job referrals and referral-based hires.
What to do
Introduce performance-contingent referral bonuses in private-sector recruitment to incentivize employees to recommend high-ability job applicants.
From the source
"In addition, when offered performance incentives for referral, men recommend higher-quality candidates, suggesting that under normal operating considerations, they do not necessarily recommend the highest-quality candidates they know."
Employment Exposure: Employment and Wage Effects in Urban Malawi