Do Blacks Benefit from Social Networks? An Audit Study

Organizations’ hiring practices are important sources of inequality in the workplace. Employers simply discriminate against certain groups while making their hiring decisions. Past research consistently showed that racial minorities are disfavored by employers (Bertrand & Mullainathan, 2004). Robust research evidence indicates that employers discriminate against Blacks even if they have superior credentials than Whites (Pager, 2003). One strategy argued to overcome this disfavor is the use of social networks while navigating in the labor market. However, research findings on whether racial minorities benefit from using networks while looking for work are mixed. Some studies found that Blacks benefit from using connections (Elliot, 2000), while others found no benefits of social contacts for Blacks (Mouw, 2002).  

Several arguments from the perspective of supply side have been proposed to explain Blacks’ networking experiences. Social isolation argument claims that Blacks do not have connections with the world of work, which prevents them from enjoying positive outcomes (Wilson, 1996).  The contact quality argument argues that Blacks are so embedded in their racial networks, which makes them trapped in wrong networks that lead to no jobs or low quality jobs (Holzer, 1987). Another disadvantage Blacks experience is that their connections might not want to speak up for them (Smith, 2005). 

On the demand side, unequal treatment of Blacks compared to Whites have been discussed through two types of discrimination: Statistical discrimination and taste-based discrimination. Statistical discrimination refers to discrimination against a certain individual using statistical information of the group to which the individual belongs when the information about the individual does not exist (Arrow, 1972). Taste-based discrimination refers to dislike and prejudice to certain individuals/groups simply due to racial animosity (Becker, 1971).

The study of referrals has potential to help us address the discussion around different types of discrimination that employers engage in (Tomaskovic-Devey & Skaggs, 1999). Because referral-based hiring provides extra information about the candidate to the employer, one would expect that hiring chances for a referred Black candidate would increase if the employer is engaging in statistical discrimination. However, in the case of taste-based discrimination, extra information gathered through referrers would not make any difference on the behavior of employer.

Previous audit studies provided evidence that White candidates are preferred over Black candidates even in cases where Black candidates have superior credentials (Pager, 2003). We also know that referred applicants are more likely to be hired than non-referred applicants (Fernandez et al., 2000). However, how employers respond to Black and White candidates when they have ties with the current workforce is still an open question.

One of the best methodologies that help us establish causal relationships is the audit methodology. Audit methodology provides direct evidence of the experimental manipulation by allowing to make all observed and unobserved characteristics of conditions equal. Previous research used audit methodology to study discrimination based on dimensions such as race (Bertrand & Mullainathan, 2004), gender (Neumark, 1996), sexual orientation (Tilcsik, 2011), and unemployment duration (Erikkson, 2014). Because previous researchers limited themselves with the dimensions which can be manipulated on a resume, no research has studied the effect of referral status on employers’ hiring decisions. In this study, I develop a novel design and study the causal effect of social networks using audit methodology. Specifically, using application web pages on company websites rather than typical resumes, I answer the following question: Conditional on having a connection in the organization, are Black candidates treated differently from White candidates?

For this study, I make fictitious applications for marketing specialist positions in the state of New York for Black and White candidates who have identical qualifications. To see the interaction effect of race and referral status, I manipulate the answer given to the question of “How did you learn about this job”? that is usually being asked on job application pages of company websites.     

One factor that promotes inequality at the workplace is hiring practices of firms which includes unequal treatment of different groups. This study is the first one that investigates the causal effect of social networks and looks at whether having a referral in the hiring company helps Blacks to receive callbacks. This study has important implications for improving our understanding regarding social networks and racial inequality in the labor market. Discrimination against Blacks in the hiring interface has been documented by previous empirical research. However, whether social networks help Blacks overcome this discrimination is still an open question.

The current study makes several contributions. First, it establishes the causal effect of networks on hiring outcomes. Second, using a clean experimental design, it shows whether Blacks benefit from referrals. Third, it plays an important role in distinguishing statistical discrimination from taste-based discrimination. Since referrers provide additional information to employers, employers who engage in statistical discrimination should not be discriminating when they take referrals into account. Finally, the study has practical implications. The findings have potential to help career counselors in shaping the advice that they give to different groups of job seekers with regard to the use of networks while navigating in the labor market.