Media Briefings

THE BENEFITS OF FINDING EMPLOYEES VIA SOCIAL NETWORKS: New experimental evidence

  • Published Date: April 2015

If you want to recruit hard-working employees, using social networks like LinkedIn may encourage new employees to give up to 50% more effort, according to new research by Professor Amrita Dhillon and colleagues to be presented at the Royal Economic Society’s 2015 annual conference.

The authors have created a laboratory experiment to simulate the hiring process. Employers could choose to hire workers through a random draw or could outsource the decision to a ‘referrer’ who would hire using his or her social network. They then compared the amount of effort that employees decided to give. The study finds that:

• A worker provides approximately 20% more effort when chosen by a referrer rather than when chosen impersonally.
• A worker recruited by an acquaintance puts in 40% more effort relative to an anonymous and impersonal hire.
• The increase in effort is driven mainly by the strength of the connection: the closer the friendship, the higher the effort.
• Having at least one friend in common increases the effort by approximately 50%.

The study also investigates the effect of offering payment to referrers, and finds that their behaviour is driven more by altruism than the monetary benefit to themselves.

The research may explain in part the success of social networks, particularly LinkedIn, as efficient ways to recruit staff. The use of social networking sites for recruitment and referrals has increased exponentially in the last decade: LinkedIn had 4,500 users in 2003 and now has more than 300 million members.

While real-world behaviour is clearly more complex than the experimental set-up, the authors suggest that the research demonstrates one advantage of using recommendation to hire employees:

‘Anecdotal evidence suggests that robust referral schemes are the key to good recruitment practices. Our research provides some support for the existence of these benefits.’

More…

The use of social networking sites for recruitment and referrals has increased exponentially in the last decade: LinkedIn had 4,500 users in 2003 and now has over 300 million members. Increasingly, employers are tapping into the social networks of their employees to recruit and retain workers. What is the logic behind this trend?

This research shows that when workers are recruited by someone they know, their effort on the job increases by approximately 40% relative to an anonymous and impersonal hire. The increase in effort is driven mainly by the strength of the connection: the closer the friendship, the higher the effort.

Having at least one friend in common increases the effort by approximately 50%. Referrers who are friends are driven more by altruism than monetary benefits, while employers could be using referrals to reduce risk or for monetary gains. Moreover these effects on effort arise because workers are altruistic or reciprocal towards referrers, not because the referrer can hire more able or more reliable workers.

The researchers use a lab experiment where they simulate employer-referrer-worker interaction using students. The focus of the experiment is a hiring decision for a worker, which leads to a worker being paid a wage. Employers can choose to hire workers through a random draw or they can outsource the decision on hiring to someone who can hire from their social network. The worker then chooses the amount of effort to put into the job. The decision to outsource is successful if the referrer is willing to pay a price for hiring the worker in return for keeping all the returns from the worker's effort.

The researchers find that the worker provides approximately 20% more effort when chosen by a referrer rather than randomly (impersonally) chosen but when the referrer is socially connected to the worker, the returns increase by 40-50% relative to anonymous hiring. The referrer is willing to pay for the privilege of being able to recruit even when they anticipate that they will not get high monetary benefits from doing so, suggesting that they have some benefits from referring workers who are friends.

The innovative features of the experiment are that it is possible to separate out the effect of choosing a friend because they will do his best for you versus choosing a friend who you know has high ability. The researchers are also able to back out the reason that friends put in more effort when hired by a friend as altruism (you care about your friend’s reputation in the firm) or reciprocity (you are grateful for the favour).

Anecdotal evidence suggests that robust referral schemes are the key to good recruitment practices. This research provides some support for the existence of these benefits.

But some outstanding issues remain: Will the results carry over to the field with real workers and employers? What about the many situations in which referrals may cause losses – for example, if the referrer is a supervisor as well, they may not be able to credibly sanction any bad behaviour, or if the referrer has no real stakes in the business then they may not hire the best workers.

Understanding the conditions under which social networks lead to favouritism, discrimination and loss of output is the next step for this work.

ENDS


‘Overcoming moral hazard with social networks in the workplace: An experimental approach’ by Amrita Dhillon, Ronald Peeters and Ayse Yuksel.

Amrita Dhillon, Professor of Economics, King's College London
Email: amrita.dhillon@kcl.ac.uk
Phone 07969324850