Sifting and Sorting: Personal Contacts and Hiring in a Retail Bank

Abstract

Using unique data from a large retail bank, the authors investigate the theoretical mechanisms by which preexisting social ties affect the hiring process. By focusing on a single, large employer they are able to identify the recruitment practices and hiring criteria used during screening for entry-level positions. This method allows them to assemble data for the pool of candidates at multiple phases of the hiring process and to conduct empirical tests of the various roles that personal contacts might play at each stage. Because they are able to treat hiring as a process, rather than as an event, they can also consider the possible selection biases introduced by the multistage screening process. More specifically, they study how employee referral (i.e., being recommended by a current bank employee) affects an applicant's success at multiple stages of the recruitment process, and they examine the cumulative effects of referral status on the chance of being offered a job. Results of probit models indicate that, controlling for other factors, referrals have advantages at both the interview and job-offer stages compared to external nonreferral applicants. Consistent with theoretical arguments that referrals are prescreened by current employees, their results show that referral applicants present more appropriate resumes than do nonreferral applicants. Referral applicants also are more likely than nonreferrals to apply when market conditions are more favorable. Nevertheless, resume quality and application timing cannot explain referrals' advantage at the interview and hire phases. They discuss the theoretical implications of these findings