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Can You Measure Social Capital?

Written by: Bill Sherman on Wednesday, 2 July 2008, 1:15 AM

It’s nice to say that “your network is your net worth.” If social capital really does connect to monetary capital, then you should have opportunities to perform a balance transfer between the two.

Two researchers, Roberto Fernandez and Emilio Castilla, focused on this question and studied the value of referral bonuses in the workplace. They hypothesized that companies that offer referral bonuses apply the principles of social capital to recruiting and hiring. They’re asking employees to leverage their network to reduce the high costs of recruiting and selections.

They examined two years worth of referrals at a call-center. Employees who recommended a candidate were paid $10 dollars for the referral. If the candidate received a job offer and lasted for at least 30 days on the job, the referring employee would receive an additional $250 dollars.

Fenandez and Castilla hypothesized that they would see financial impact in three areas:

  • A richer selections pool–it will take fewere interviews to find hireable candidates
  • Better matches–referral new-hires would have lower turnover than traditional new-hires
  • Social enrichment–the social bond between referrer and referee would transfer to some degree to the company and lowering turnover

The two researchers found evidence for the richer selection pool and the social enrichment hypotheses.

  • Total costs to select and hire non-referrals per hire: $1,394.37
  • Total costs to select and hire referrals per hire: $977.95
  • Savings: $416.43 per hire
  • Referral payment: $260 to referring employee
  • ROI for company: 66%

If managed properly, the social enrichment metric could yield $1,496 in savings per employee (due to reduced turnover).

Fernandez, Roberto M. and Castilla, Emilio J. “How Much is that Network Worth? Social Capital in Employee Referral Networks.” in Social Capital: Theory and Research. Lin, Burt, and Cook eds. Transactions: New Brunswick, NJ, 2007. 85-104.

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