The Low-Wage Labor Market: Challenges and Opportunities for Economic Self-Sufficiency. Mismatch in the Low-Wage Labor Market: Job Search Perspective . The Effectiveness of Informal Search Strategies


  • Across a variety of industrial and occupational sectors, informal referrals are the most frequent and most effective job search method used in the low-wage labor market.

The most consistent finding in the job search literature, from both the employer and worker sides, is the importance of informal networks to the job-matching process. Both the early job search studies and several more recent investigations suggest that reliance on information gained from informal network members is an extremely common and effective job search strategy. Depending on the study, informal referrals are typically estimated to account for somewhere between 25 to 60 percent of hires.

The prominence of informal referrals is underscored both by studies of job seekers and employers. Job seekers who utilize informal referrals have a greater probability of getting an offer as compared to seekers who utilize other methods.(13)  Moreover, informal referrals are most often mentioned as the type of method used to acquire one's job, in numerous studies of employees.(14)

Consistent with the findings for job seekers, employer studies also indicate that employers put considerable trust in the value of referrals. Across studies, employers report that somewhere between one-third and one-half of target jobs are filled either by a current employee referral or by referrals from acquaintances of the employer. For example, Holzer (1996) in his analysis of a survey of 800 employers in Atlanta, Boston, Detroit, and Los Angeles, representing a variety of industries, finds that slightly more than one-fourth of the employers hired their last noncollege-educated employee through a referral from a current employee, and an additional 12 to 14 percent were filled through referrals provided by a personal acquaintance of the employer. Several qualitative interview studies with urban employers suggest even greater employer reliance on informal referrals. (15)

Overall, these studies suggest that the use of informal referrals is relatively common across industrial sectors, occupational categories, and occupational statuses, but seem to be used disproportionately for entry-level jobs, jobs that do not require a college education, blue-collar jobs, and for low-skilled/low-wage occupational sectors with ethnically homogenous workforces. Small employers may be particularly likely to hire via informal network connections.


  • The informal referral process operates largely through closely knit, ethnically homogenous social networks. As a result, informal referrals facilitate the employment of individuals within the network base of a firm's current workforce, while excluding individuals not linked to these network structures.

The importance of informal network referrals to the hiring process suggests, of course, that job seekers with fewer connections to employed individuals — those least likely to receive inside information about jobs and least likely to be recommended by current employees to their employers — will be at a disadvantage in the job-finding process. In other words, an informal hiring system facilitates the employment of individuals who are already part of the network base of the current workforce, at the exclusion of others who may be more weakly attached to it. This exclusionary aspect of an informal search strategy is exemplified in the case of many employers of disadvantaged workers whose ethnically homogenous workforces are maintained and supported by the practice of recruiting new employees almost entirely via employee referrals. Because these referrals are drawn primarily from closely knit and ethnically homogenous social networks, it becomes very difficult for prospective job seekers with weaker network connections to penetrate the system. Such a system also narrows the labor market opportunities of the nonexcluded group to a limited set of segregated occupational "niches." Research suggests that low-skilled Latino/a and Asian immigrant workers may have particularly effective closely knit job networks, and these networks may operate at the expense of African Americans who might otherwise find employment in these firms.(16)  In fact, because firms that rely primarily on internal employee referrals tend to have segregated Latino/a or Asian workforces, the exclusionary aspects of informal search most negatively affect African American job seekers whose social networks are disproportionately made up of other low-skilled blacks.(17)