Social Capital at Work: Networks and Hiring at a Phone Center

By Roberto M. FernandezEmilio CastillaPaul C. Moore
1998| Working Paper No. 1528

We argue that a common organizational practice—the hiring new workers via employee referrals—provides key insights into the notion of social capital. Employers who use such hiring methods are quintessential “social capitalists,” viewing workers’ social connections as resources in which they can invest, in order to gain economic returns in the form of better hiring outcomes. We identified three ways through which such returns might be realized: the “richer pool,” the “better match,” and the “social enrichment” mechanisms. We developed a set of falsifiable hypotheses that sharply distinguish among these accounts. Using unique data on hiring from a bank’s credit card phone center, we found evidence supporting both the “richer pool” and “social enrichment” processes, but not the ‘better match” account. We further argue that if social capital is to be more than a metaphor, analysts must identify the investment costs, the rate of return, and the means by which returns are realized. Using unique company data on the dollar costs of screening, hiring, and training, we found that the firm’s investment in the social capital of its employees yields significant economic returns. These returns are realized by savings in screening costs due to referrals being more appropriate for the job at application (i.e., the “richer pool” mechanism). However, we found very little evidence that the “better match” process produces significant returns to the firm’s social capital investment. Consistent with the “social enrichment” process, we observed interdependence of turnover behavior between referrers and referrals, a process that cannont be explained by the atomistic “better match” theory. To the extent that the firm can manage this interdependence between referrers and referrals, we estimate that the potential returns to the firm are very large. However, in this case, the firm does not realize these returns. While this firm has clearly missed an opportunity, we suggest ways in which the firm might better manage the interdependence between referrers and their referrals in order to realize returns via the social enrichment process.