Theory Seminar - Shahir Safi (Concordia University)

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Jun Xiao

T: +61 3 9035 3161

Title: Job Market Signalling Via Social Ties

Abstract: When there is asymmetric information about abilities of applicants, employees can “signal”—recommendation letter or put in a good word—some of this information to firms by recommending applicants they personally know. I consider how employees strategically transmit information to firms when there are both gratitude benefits for recommendations and reputation costs for providing inaccurate information. Unlike the classic setting of job market signalling by applicants, senders (employees) can now have imperfect information about abilities and my analysis builds upon this feature. I then develop two applications of this model which consider the strategic “selections” of ties and hiring channels by applicants. This allows me to help explain mixed evidences about the returns to using different types of ties (weak vs strong) and hiring channels (formal market vs social tie), as well as the relatively higher use of social ties by low skill/ability applicants.