Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/315015 
Year of Publication: 
2025
Series/Report no.: 
Working Papers in Economics and Management No. 1-2025
Publisher: 
Bielefeld University, Faculty of Business Administration and Economics, Bielefeld
Abstract: 
We study the effect of finding a job through one's social contact on starting wages. Using combined SOEP-INKAR data for Germany and propensity score analysis - both matching and weighting - we document that referral hiring is associated with a wage penalty of 10%. This penalty is stable over time. Separating by the type of the social contact, we find that referrals from former colleagues are associated with a 9% wage premium compared to a direct formal application. In contrast, referrals from friends are associated with a 7% wage penalty. Our results highlight persistent self-selection of workers on observable and unobservable characteristics. Using information from a short test of cognitive abilities (symbol digit test) we document that workers recommended by former colleagues perform best in the ability test, consistent with the predictions from a sorting model. The lowest performance is recorded for those relying on the help of their friends. The effects are primarily driven by the sub-sample of women. No significant differences across search channels are found for personality traits.
Subjects: 
job search
social networks
referrals
cognitive abilities
JEL: 
C21
J31
J62
J64
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by Logo
Document Type: 
Working Paper

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