From Nick Colas of Convergex
Money, You've Fot Lots Of Friends
The St. Louis Fed may have inadvertently cracked the code on the “True” value of social media. Economists at this Fed branch found that jobs which you find through personal contacts generally pay far more than those you might run across on your own. Or, as the old saying goes, “It’s not who you know. It’s who knows you.”
If you’re looking for a new job, skip the applications and phone a friend. That’s the ideal way to clinch a new position according to recent research by David Wiczer at the St. Louis Fed. He looked at the Survey of Consumer Expectations from 2013 to compare employment trends on those who “directly contacted organizations about posted vacancies or received referrals through their network.” Here are his findings:
“On average, salaries were 6 percent higher if workers found their job through their networks.” This includes an average weekly salary of $772.20 (about $40 K per year) for those who got their job from a referral compared to $725.84 (around $38 K) for those who didn’t go through their network.
“Workers who were searching while unemployed received offers through their networks that averaged 62 percent more than those found through direct contact.” Those looking for another job while employed “received network offers that were 12 percent higher, on average.” Source: https://www.stlouisfed.org/on-the-economy/2016/july/jobs-found-referrals-pay-more
Workers receive more pay from referred jobs because “the workers who tended to find jobs through their network were different than those who found jobs through direct search, and the better-connected workers had access to better jobs.” Wiczer elaborates on this topic in a working paper out last month with Marcelo Arbex and Denis O’Dea. They pose a couple of other conclusions.
First, “network connections pass along wage offers like their own” since they’ve already “selected wages and climbed the ladder.” Second, “job referrals come disproportionately from workers who are more central to the network than an average worker.” That means they likely “have access to better jobs” and “will also refer better jobs to their own connections.” Here’s a link to the full report.
* * *
In sum, not only do jobs discovered through a worker’s network pay higher wages, they retain employees for longer and enable people to encounter shorter periods of unemployment. So even if you have a job, now may be a good time to update your LinkedIn account. You may have a better opportunity out there. This is why Fed Chair Janet Yellen looks to the quits rate as an indicator of strength in the economy, as workers quit their jobs when they are confident they can gain another.