How Much Is That Network Worth? Social Capital in Employee Referral Networks

The notion of social capital has been applied to disparate phenomena ranging from job search to economic development. In this chapter, the authors argue that a common organizational practice—hiring new workers via employee referrals—provides key insights into the notion of social capital. They examine social-capital investments and returns from the perspective of the employer. The authors also argue that employers who use such hiring methods are quintessential "social capitalists," viewing workers' social connections as resources in which they can invest and gain returns in the form of improved hiring outcomes. They identify three ways through which such returns might be realized: the "richer pool," the "better match," and the "social enrichment" mechanisms. The authors suggest that the benefits of applying the term social capital to network-related processes are most likely to outweigh the costs of using the term the more clearly the analysis addresses "investment for return" phenomena.