Social networks and job referrals in recruitment

Social contacts help getting a job through two mechanisms: by providing information on job opportunities or working conditions to job seekers and by providing information on candidates to employers. This paper shows empirical evidence of the second mechanism: social contacts bring job referrals. I use extensive data on social networks and referrals on all directors of large listed US companies between 2004 and 2008. Compared to non-connected new directors, connected new directors are 14% more likely to be referred by current board members with whom they share employment history. Theoretical predictions help discriminating between information provision and favoritism: referrals help select directors with higher ability, in particular the type of ability that is at best only partially observed at the time of hiring.