MACRO: The Heterogeneous Impact of Referrals on Labor Market Outcomes; Dr Benjamin Lester (Federal Reserve Bank of Philadelphia)

Abstract

We study the impact of referrals on labor market outcomes. First, we document a new set of facts exploiting data that allows us to distinguish directly between different types of referrals—those from family and friends and those from business contacts—and different types of jobs, as measured by the skill requirements of the occupation. Then we develop a structural framework to interpret these facts and quantify the effects of social and business networks on employment, earnings, output, and inequality. Referrals from family and friends generate good jobs for all workers but are relied upon by those who struggle to generate offers through other channels. Referrals from business contacts are used predominantly by more productive workers who receive offers through other channels relatively frequently. An important implication is that referrals from business contacts exacerbate earnings inequality while referrals from family and friends actually reduce inequality.

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