The Low-Wage Labor Market: Challenges and Opportunities for Economic Self-Sufficiency. Mismatch in the Low-Wage Labor Market: Job Search Perspective . The Impact of Search Method on Turnover, Worker Productivity, and Earnings


It is also important to know whether the search strategy has an impact on other employment outcomes such as turnover, productivity, and earnings. As discussed below, the evidence regarding this question is quite mixed.

  • Job turnover may be lower and perceived productivity, higher for jobs gained through informal referrals; however, there is no consistent relationship between type of search method used and earnings.(37)

Both quantitative and qualitative studies consistently find that turnover is lower for jobs found through informal recruitment channels as compared to advertisements, public and private employment agency referrals, or walk-ins.(38)  Although the effect of search method on actual productivity is unknown, there is evidence that, net of individual-level and firm-level characteristics, employers judge the productivity of workers more positively when they have been referred through an informal contact, rather than via either a public or private employment agency.(39)

Informal recruitment may represent an effort by employers to regulate worker conduct and facilitate on-the-job training, thereby improving worker productivity and reducing turnover.(40)  Specifically, it has been argued that working side by side with one's family members and friends on the job facilitates the transmission of normative work rules and increases the pressures on employees to successfully meet workplace expectations. Whereas some employers express concern about coworkers being "too close," especially in sales positions and positions that deal with the transfer of money, these concerns apparently do not outweigh the benefits that informal referrals represent to most employers.(41)

The relationship between search method and earnings is less clear. Findings that suggest initial wage gains for workers who found their jobs via informal contacts rather than formal means(42) are dampened by studies suggesting these gains are short-lived for most respondents(43) and by other studies that show no impact on wages,(44) or even negative wage effects.(45)  Holzer (1996) finds, for example, that, net of other effects, firms whose last noncollege hire was recruited through a current employee (as well as through direct application) actually paid less than those recruited via private employment agencies and union referrals.(46)  Moreover, to the extent that informal job search does hold a relative wage advantage over other methods, the advantages apparently hold only for whites.(47)


  • The mixed results regarding earnings might be explained by differences in the social capital of networks. Social networks with higher-status members may provide ties to higher-quality jobs, and vice versa.

Whether informal referrals lead to better quality jobs (e.g., higher earnings) may be dependent on the status characteristics of the referring individuals within a job seeker's network. Unemployed or low-wage job seekers who are embedded in closely knit, homogenous networks of other unemployed or marginally employed persons may not reap wage benefits by relying on informal search methods, because their social contacts share a limited amount of job information and this information is likely to concern a narrow range of low-wage job openings. In contrast, reliance on a more heterogeneous network of individuals who vary in status as well as connections might expand an individual's knowledge about job opportunities, more significantly than is possible within the shared milieus of close family and friends, and result in a more diverse set of referrals and ultimately better quality jobs.(48)  Such an explanation helps to explain the apparent differential effects of informal referrals by race and ethnicity. For example, minority job seekers who successfully rely on white referrals, especially white male referrals, have been found to receive higher wages than those whose referrals share similar individual characteristics to themselves.(49)  Thus, it would appear that the question of whether an informal referral leads to a better job is dependent on characteristics of the referring source and his or her relationship to the labor market.