Articles

Whether and how social ties create value has inspired substantial research in organizational theory, sociology, and economics. Scholars generally believe that social ties impact labor market outcomes. Two explanatory mechanisms have been identified, emphasizing access to better job offers in pecuniary terms and the efficacy of non-redundant information. The evidence informing each theory, however, has been inconsistent and circumstantial. We test predictions from both models using a rich set of job search data collected from an MBA student population, including detailed information about search channels and characteristics of job offers. Importantly, we can compare offers made to the same student derived via different search channels while accounting for industry, function, and non-pecuniary characteristics. We find that contrary to conventional wisdom, search through social networks typically results in job offers with lower total compensation (-17 percent for referrals through strong ties and -16 percent for referrals via weak ties vs. formal search). However, our models also show that students are considerably more likely to accept offers derived via weak ties. They do so because they are perceived to have greater growth potential and other non-pecuniary value. On balance, our tests are consistent with Granovetter’s argument that networks provide value by facilitating access to information that is otherwise difficult to obtain, rather than providing greater pecuniary compensation.

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