NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
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What Do Employee Referral Programs Do?

Guido Friebel, Matthias Heinz, Mitchell Hoffman, Nick Zubanov

NBER Working Paper No. 25920
Issued in June 2019
NBER Program(s):The Development Economics Program, The Labor Studies Program, The Productivity, Innovation, and Entrepreneurship Program, The Industrial Organization Program

Employee referral programs (ERPs) are randomly introduced in a grocery chain. Larger bonuses increase referrals and decrease referral quality, though the increase in referrals is modest. Still, ERPs are highly profitable, partly, because referrals stay longer than non-referrals, but, mainly, because non-referrals stay longer in treated stores than in control stores. In a post-RCT firmwide ERP rollout, referral rates remain low for grocery jobs, but are high for non-grocery jobs, which are perceived as more attractive. Our results (1) are consistent with referral-making being driven by money and altruism toward friends; (2) show that ERPs can have substantial benefits beyond generating referrals. The most-supported mechanism for (2) is that workers value being involved in hiring.

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Document Object Identifier (DOI): 10.3386/w25920

 
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