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Employee Referral, Social Proximity And Worker Discipline: Theory And Evidence From India

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Abstract
We study an important mechanism underlying employee referrals into informal low skilled jobs in developing countries. Employers can exploit social preferences between employee referees and potential workers to improve discipline. The profitability of using referrals increases with referee stakes in the firm, and, in most cases, with the strength of the social tie between the referee and the new recruit. We provide an empirical counterpart to these results using primary data covering low- and unskilled migrants in India. Consistent with the theoretical predictions, we find a high prevalence of workplace referral and strong kinship ties between referees and new recruits. Finally, workplace intermediaries are different from and typically in more ‘prestigious’ jobs than those recruited.

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  • Dhillon, Amrita & Iversen, Vegard & Torsvik, Gaute, 2013. "Employee Referral, Social Proximity And Worker Discipline: Theory And Evidence From India," Working Papers in Economics 04/13, University of Bergen, Department of Economics.
    • Handle: RePEc:hhs:bergec:2013_004
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    Cited by:

    1. Afridi, Farzana & Dhillon, Amrita & Sharma, Swati, 2015. "Social Networks and Labour Productivity: A Survey of Recent Theory and Evidence," Indian Economic Review, Department of Economics, Delhi School of Economics, vol. 50(1), pages 25-42.
    2. Anandi Mani & Emma Riley, 2019. "Social networks, role models, peer effects, and aspirations," WIDER Working Paper Series wp-2019-120, World Institute for Development Economic Research (UNU-WIDER).
    3. Munshi, K., 2017. "Caste and the Indian Economy," Cambridge Working Papers in Economics 1759, Faculty of Economics, University of Cambridge.
    4. Björn Nilsson, 2019. "The School-to-Work Transition in Developing Countries," Journal of Development Studies, Taylor & Francis Journals, vol. 55(5), pages 745-764, May.
    5. Kaivan Munshi, 2014. "Community Networks and the Process of Development," Journal of Economic Perspectives, American Economic Association, vol. 28(4), pages 49-76, Fall.
    6. Cappellari, Lorenzo & Tatsiramos, Konstantinos, 2015. "With a little help from my friends? Quality of social networks, job finding and job match quality," European Economic Review, Elsevier, vol. 78(C), pages 55-75.
    7. Dhillon, Amrita & Peeters, Ronald & Muge Yukse, Ayse, 2014. "Overcoming Moral Hazard with Social Networks in the Worksplace: An Experimental Approach," CAGE Online Working Paper Series 183, Competitive Advantage in the Global Economy (CAGE).
    8. Boza István & Ilyés Virág, 2020. "Decomposition of co-worker wage gains," IZA Journal of Labor Economics, Sciendo & Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 9(1), pages 1-31, March.

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    More about this item

    Keywords

    networks; low- and unskilled jobs; India; moral hazard; employee referrals; efficiency wages; referee incentives; strength of ties;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements

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