Abstract
We develop a new theory of employee referrals into informal low - and unskilled jobs in developing country labour markets. Employers use social preferences between referees and new recruits to mitigate moral hazard problems in the workplace. We show that employers prefer to hire workers with strong social ties to referees and deliberately select referees with high stakes in the firm. In-depth primary data on low- and unskilled migrants in India are used to provide a suggestive empirical counterpart to these results. Consistent with the theoretical predictions, we observe a high prevalence of referral and of strong social ties between referees and new recruits. Further, workplace intermediaries are different from and typically in higher stake and more prestigious jobs than those recruited. Detailed evidence on wages and job types from the main sector of migrant employment provides additional support for our moral hazard explanation for referral.
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Disclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.