DP13770 What Do Employee Referral Programs Do?

Author(s): Guido Friebel, Matthias Heinz, Mitchell Hoffman, Nick Zubanov
Publication Date: May 2019
Keyword(s): altruism, employee referral programs, Hiring, referrals, respect, Turnover
JEL(s): D90, J24, J30, J63, M51
Programme Areas: Labour Economics, Industrial Organization
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=13770

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.