It's Who You Know

It pays to know someone at the job you want.

The key to getting a bigger paycheck is not just applying for a job with a higher salary but also applying to a company where you know people, either a former coworker or an acquaintance. If more women did this, labor market research suggests, the wage gap between men and women could be reduced.

Wage inequality between men and women, and also between a country’s natives and immigrants, is a well-established social fact. Existing social science research has shown that job seekers and employers access information about job opportunities and prospective hires in different ways. Information about new jobs is actively shared among colleagues and acquaintances, and employers rely heavily on candidate referrals from their own employees. Both sources of information have been shown to enhance job search outcomes, and studies showing the importance of such information are among the most cited works in social science.

Survey and interview-based studies have pointed out that women, compared to men, reach out to fewer contacts when searching for jobs and are also less likely to be referred.

Likewise, experiments and audits have shown that minority groups’ referrals don’t hold as much weight. These studies are limited to single firms or specific industries, which makes generalizing to all labor markets extremely difficult. Big data helps broaden the scope of existing work.

Governments collect extensive data on entire labor markets for tax purposes or social security contributions. All workers are meticulously tracked through the labor market, indirectly measuring overlapping employment spells in the same firms. This provides researchers a unique opportunity to document similarities and differences across industries, and evaluate which minority groups and markets experience more or less wage inequality induced by co-worker networks.

We built a dataset from government records of the entire labor market in Berlin over a two-decade period and measured the differences between wage trajectories of different social groups and their connections in the labor market. Preliminary findings show that wages not only go up when you switch jobs, but that knowing someone at your new company is also a factor for getting paid more. Specifically, having an inside connection, such as a former coworker, was found to have a significant surplus effect.

Having an inside connection, such as a former coworker, was found to have a significant surplus effect.

Both men and women benefit from the presence of former coworkers at their new jobs, however, the impact is significantly larger for men compared to women. A potential explanation may be that men are more likely to utilize their network to its full potential.

As we continue to develop the research, we will investigate how the gender-segregated nature of certain sections of the labor market shapes these differences further. For example, it may be the case that in male-dominated industries, differences in wage gains for men and women (based on employee networks) are even more pronounced.

We will also evaluate if a similar pattern emerges among Berlin’s Turkish immigrants and non-immigrants, and see if the gender or immigration status of coworkers at new firms has any effect on wage gains. For example, we want to find out if the gains are dependent on which gender is able to refer or pass information along about job opportunities.

Kinga Makovi and Malte Reichelt
Assistant Professors of Social Research and Public Policy