The wage effects from the use of personal contacts as hiring channels

It has been argued that the use of personal networks in the hiring process has a positive influence on the wages of referred individuals. However, the value of recommendations to the employer varies according to the type of vacancy to be filled and the provider of information on job applicants. Using data from a manufacturing firm, which combine wages from the personnel files and job-histories from interviews with the workers, it is shown that new recruits receive a higher starting wage when recommended to the job by an individual who has direct experience of their productivity. On the contrary, the use of referrals from friends and relatives has no effect on the starting wage and may even be negatively related to wages of workers in unskilled jobs.