New research by Stephen V. Burks, Bo Cowgill, Mitchell Hoffman, and Michael Gene Housman (paper available here) looks at the performance of employees hired as a result of a referral vs. those hired from other sources. They knew from previous research that referred employees often performed better, but couldn't explain why.
Through their research, they found that, relative to non-referred workers, referred workers are a better deal, even though both groups have similar characteristics and score similarly on standard productivity measures. Referred workers:
- Are less likely to quit
- Are more innovative
- Have fewer accidents
The graphs below shows worker likelihood of quitting based on referral status:
Referrals result in employees who are better suited for the job at hand, which, their research found, makes them 25 percent more profitable than non-referred workers. (See the math in Table 16 below.) Also of note, is that "people tend to refer others like themselves, making referrals from high productivity workers especially valuable."
The practical take-away here for entrepreneurs? If you can find employees through referrals from trusted sources, do so. If you don’t have one already, start an official employee referral program to find the best-fit candidates. If you already have such a program, you’re good to go for now. The authors are planning future research to explore the benefits of expanding existing employee referral programs.