The Value of Reference Letters - Experimental Evidence from South Africa

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Abstract:

Information asymmetries about workers’ skills can adversely affect both match quality and equity in labor markets. Reference letters from former employers could play a role in alleviating these asymmetries, but they are rarely used in developing country settings. We conduct a series of field experiments to investigate the value and usage of standardized reference letters among young job seekers in South Africa. A resume audit study finds that including a reference letter with the application increases employer call-backs by 60%. Women, traditionally excluded from many referral networks, particularly benefit: firms pay closer attention to the content of letters sent by women and increase response rates by 89%. A second experiment, which encourages job seekers to obtain and use a reference letter, finds similar results. Men are not more likely to find jobs, but employment rates for women who have reference letters double, thus fully closing the employment gender gap in our sample after three months. Letters are effective because they provide accurate information about workers' skills that firms use to select applicants of higher ability, unless they deem letters to be implausibly positive. Despite these positive findings, reference letters are not widely adopted, partly because job seekers underestimate their potential value.

Last updated on 10/20/2016