How Winning More Friends Can Get You More Money

How Winning More Friends Can Get You More Money

Feel like skipping that networking event after work? Maybe you should think again.

Workers who found jobs through personal and professional friends got paid 6% more in wages, on average, than those who found their jobs through direct contact with a firm. Well-connected people are also more likely to stay in their jobs for longer and have shorter periods of unemployment.

That’s because the more people you know, the better your chances are of having a network of well-connected people who can refer you to better paid jobs, according to new research from Federal Reserve Bank of St. Louis economist David Wiczer.

Economists have previously studied the impacts of network connections on wages, but have traditionally argued that the reason networks lead to success is because they can provide access to more information about the job market.

Mr. Wiczer, by contrast, sees a fundamental difference in the type of jobs that are referred through friends. “The workers who tended to find jobs through their network were different from those who found jobs through direct search, and the better-connected workers had access to better jobs,” he wrote.

Mr. Wiczer said that among currently employed workers, those who tapped their friends for a job referral had an average weekly salary of $772.20 a week, versus $725.84 for those who didn’t.

The findings underscore the challenges in addressing income inequality. Well-connected people tend to help other well-connected people get jobs, making it hard for those with smaller social networks to gain access to the most coveted posts and then pass them along.

The post was based on a paper Mr. Wiczer wrote with colleagues Marcelo Arbex and Denis O’Dea. They found that one reason jobs through networks are better and higher paid is because those referring the jobs have already climbed the business ladder and can pass along status and wages similar to the ones they have already obtained. These friends can essentially pre-screen jobs before they refer them to others in their network.

Another reason is that referrals tend to disproportionately come from people who are more central to a network than a typical worker.

“To the extent that workers who are more connected in the network have access to better jobs, they will also refer better jobs to their own connections,” wrote the economists. “This implies that jobs passed through the network generally have higher wages than those found through random search and that workers who find a job through their network generally are better connected.”

How Winning More Friends Can Get You More Money

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