Employee referral and productivity : evidence from a Chinese manufacturing firm

Abstract

Based on detailed personnel data and employee questionnaires from 2020-2023 of a Chinese manufacturing company, this study systematically examines the mechanism of action of the internal employee referral system and its impact on job performance. Analyzed by the fixed-effects model, the study finds that internally recommended employees exhibit significant advantages in several dimensions: pre-tax and after-tax wages are 5.99% and 8.70% higher, attendance hours increase by 4%, probability of absenteeism or absenteeism clocking in is 3.49% lower, and probability of leaving the job is 19.98% lower. In particular, the short-term turnover rate of referred employees was significantly lower than that of non-referred employees at the beginning of their employment. However, the study also found that internally referred employees had a 2.75% higher probability of being subject to operational fines, suggesting a possible risk of operational errors. In addition, through correlation analysis, the study reveals a significant "homogeneity tendency" between referrers and referees in terms of age, worker status, and type of household registration, reflecting the important role of social networks in the referral process. This study not only deepens the understanding of the value and limitations of internal referral systems in the Chinese context, but also provides empirical evidence and practical guidance on how companies can optimize the design of their referral mechanisms, balance efficiency and diversity, and adapt to digital change.