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

It has been argued that personal networks influence positively the wages of referred individuals. However, the value of recommendations to the employer depends on the type of vacancy and the provider of information. Combining personnel files and job-histories of workers at a manufacturing firm, it is shown that new recruits receive a higher starting wage when recommended to the job by an individual with 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.