| By: |
Dhillon, Amrita (King’s College, London);
Iversen, Vegard (University of Greenwich);
Torsvik, Gaute (University of Oslo) |
| Abstract: |
We propose a new theory to explain why employers mobilize workplace insiders
for the hiring of new staff. In settings with incomplete contracts, we show
how workplace insiders can help employers tackle recruit discipline challenges
at a lower cost. A key idea is that the employer can use sanctions against the
referee to keep the new hire in line. Our model predicts that employers will
use existing staff of stature and with accumulated goodwill within the firm as
referees, since such staff have a personal stake in their choice of recruit.
The model also predicts a strong social tie between the referee and the
recruit to ensure that the recruit internalizes the costs to the referee of
own misbehavior or underperformance. We use a small, in-depth dataset from
India to scrutinize how well the predictions of our theory and of the main
rival explanations for referral align with hiring patterns, wage and labor
turnover observations. We find suggestive support for our theory and argue
that these findings are hard to reconcile with rival referral explanations. |
| Keywords: |
networks, low- and unskilled jobs, India, moral hazard, employee referrals, efficiency wages, referee incentives, strength of ties. JEL Classification: J41, J31, D82, D86, O12, O17 |
| Date: |
2019 |
| URL: |
http://d.repec.org/n?u=RePEc:cge:wacage:418&r=all |