Employer size, referral hiring, and racial inequality: evidence from Brazil

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In Brazil, nonwhite workers are less likely than white workers to be hired by high-wage employers and larger employers pay higher wages, yet nonwhite workers sort to larger employers. This pattern holds conditional on detailed job characteristics. We hypothesize that larger employers hire more nonwhite workers because (i) entrepreneurs are disproportionately white, (ii) referral networks are racially segregated, and (iii) hiring at large employers is less tied to the entrepreneur's referral network. Consistent with this mechanism, we find that: (a) the effect of referral connections on hiring outcomes is decreasing in employer size; (b) referral effects are driven by incumbent employees and connected job seekers of the same race; (c) racial composition converges across employers as they grow; and (d) racial composition converges across employers as their cumulative number of hires increases. We find turnover dynamics consistent with the premise that referral hiring facilitates learning about match quality and that small and high-wage employers screen white job candidates with more precision than nonwhite job candidates on average.