Manolis Galenianos (Royal Holloway, University of London)

Hiring Through Referrals

An equilibrium search model of the labor market is combined with a social network. The key features are that the workers' network transmits information about jobs and that wages and firm entry are determined endogenously. Empirically, the inter-industry variation in aggregate matching efficiency is attributed to the variation in referral use. The model predicts that the efficiency of the aggregate matching function is pro-cyclical which is consistent with empirical evidence.