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Employee referrals as a screening device
Author(s) -
Ekinci Emre
Publication year - 2016
Publication title -
the rand journal of economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 3.687
H-Index - 108
eISSN - 1756-2171
pISSN - 0741-6261
DOI - 10.1111/1756-2171.12141
Subject(s) - referral , promotion (chess) , incentive , competition (biology) , function (biology) , payment , business , marketing , actuarial science , economics , microeconomics , finance , medicine , family medicine , political science , ecology , evolutionary biology , politics , law , biology
This article develops a career‐concerns model to examine the screening function of employee referrals. First, I show that employees' reputational concerns provide them with an incentive to refer high‐ability applicants. This result explains how firms that offer fixed payments, rather than bonuses contingent on the referral's posthire performance, can elicit high‐ability referrals from their employees. Second, I consider the promotion competition as a potential mechanism that creates a conflict of interest between a firm and its employees concerning referral hiring. I show that referrals may still serve a screening function even when the promotion competition distorts employees' referral decisions.