Discussion Paper Details

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Title: What Do Employee Referral Programs Do?

Author(s): Guido Friebel, Matthias Heinz, Mitchell Hoffman and Nick Zubanov

Publication Date: May 2019

Keyword(s): altruism, employee referral programs, Hiring, referrals, respect and Turnover

Programme Area(s): Industrial Organization and Labour Economics

Abstract: Employee referral programs (ERPs) are randomly introduced in a grocery chain. Larger bonuses increase referrals and decrease referral quality, though the increase in referrals is modest. Still, ERPs are highly profitable, partly, because referrals stay longer than non-referrals, but, mainly, because non-referrals stay longer in treated stores than in control stores. In a post-RCT firmwide ERP rollout, referral rates remain low for grocery jobs, but are high for non-grocery jobs, which are perceived as more attractive. Our results (1) are consistent with referral-making being driven by money and altruism toward friends; (2) show that ERPs can have substantial benefits beyond generating referrals. The most-supported mechanism for (2) is that workers value being involved in hiring.

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Bibliographic Reference

Friebel, G, Heinz, M, Hoffman, M and Zubanov, N. 2019. 'What Do Employee Referral Programs Do?'. London, Centre for Economic Policy Research.