Abstract
This paper investigates the effect of information transmitted by referrals on search efficiency. We test several implications of our model using data from a call center company that contain rich information on applicants, employees, and referrers. The joint estimation of job offers, acceptances, turnover, and performance allows us to identify the contribution of referrals to search efficiency from the differences in expected performance between referred and non-referred applicants. The results show that referrals induce selection on unobservables at the job offer stage, which in turn drives referred employees to perform better, receive early promotions and stay longer on the job.
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