Poinbank:White job candidates are more likely to get hired through employee referrals. Here's why.

Flashing a polished resume,Poinbank a sharp cover letter and a LinkedIn profile doesn’t guarantee a foot in the door.

Making the shortlist – let alone the final cut – is not just a matter of sterling credentials. It’s still largely a matter of who you know. And nothing counts more than a company insider putting in a good word with a hiring manager. But research shows these employee referrals don’t give everyone a fair shake.  

White candidates are almost twice as likely to be hired as those from other racial and ethnic groups, even in organizations committed to diversity, according to new findings from diversity strategy and consulting firm Paradigm.

Insular networks are 'a self-perpetuating cycle'

Because white people – and white men in particular – historically have been the majority group in most organizations, especially in leadership roles, job candidates recommended through employee referral programs are disproportionately white and male, Paradigm co-founder and CEO Joelle Emerson said.

“In both our personal and professional lives, our networks tend to be composed of people who look like us," she said. “You essentially have a self-perpetuating cycle."

Job applications were more diverse than referrals in most companies Paradigm studied. 

Black candidates represented 3% of employee referrals but 5% of all job applicants; Latino and Hispanic candidates 4% of employee referrals but 7% of all job applicants; and Asian candidates 28% of employee referrals but 40% of all job applicants, Paradigm found.

“All of this compounds and becomes a disadvantage for candidates of color,” Emerson said. 

‘Wake up call’ for employers as nation becomes more diverse

Emerson says the Paradigm study comes at a critical moment for organizations as the workforce shrinks and the nation grows more diverse.

Most organizations her firm works with already struggle to hire, advance and retain employees from underrepresented groups — people of color, women and non-binary people, disabled people, veterans, the LGBTQ+ community, Emerson said.

“This should be a bit of a wake-up call,” she said. “You very likely have gaps in hiring, performance management, promotions and employee experience that are disadvantaging groups of employees that are currently underrepresented, but growing as a relative proportion of the overall workforce.

Emerson said if employers can't remove those obstacles now, they will struggle to attract the best employees in the future.

The Paradigm study also counters misleading narratives from anti-diversity activists who claim that DEI programs discriminate against white people and give underrepresented groups an unfair advantage in hiring and promotions, according to Emerson.

“The data shows that simply isn't the case,” she said.

A USA TODAY investigation of the nation’s largest companies found that the top ranks are predominantly white and male, while women and people of color are concentrated at the lowest levels with less pay, fewer perks and little opportunity for advancement.

Job candidates referred by employees more likely to get hired

Popular in organizations across industries, referral programs are often considered a win-win-win. Job applicants with a personal recommendation have the inside track. Employers get vetted candidates who start sooner and stay longer. And the employee who dropped a friend’s name collects a cash bonus. 

“For many companies, they are the primary or a top source of hired employees,” Emerson said. 

Referred candidates have a much better shot than job hunters who submit their resume online or who apply through recruiters, staffing agencies and career fairs.

Paradigm looked at data from more than 2 million job candidates and found that referred candidates were over 4.5 times as likely to get hired.

Employee referral programs can harm diversity efforts

Research studies have raised concerns about referral programs for years as have anti-discrimination regulators. 

In 2018, Payscale research found that referral programs benefited white men more than any other demographic group. White women were 12% less likely, men of color 26% less likely and women of color 35% less likely to receive job referrals than their white male counterparts, the compensation data provider found.

"It is recognized that employee referral programs can jeopardize diversity efforts, particularly if your current workforce demographics are not diverse," Payscale's pay equity strategist Ruth Thomas said. "We also know from studying ethnicity pay gaps that lack of professional networks is a driver of pay gaps."

The analysis by PayScale found that a woman hired through a referral program got on average a $3,700 increase in pay, but a man hired through a referral program got more than twice that.

"Unless the workforce is racially and ethnically diverse, exclusive reliance on word-of-mouth should be avoided because it is likely to create a barrier to equal employment opportunity for racial or ethnic groups that are not already represented in the employer's workforce,” the Equal Employment Opportunity Commission says on its website. 

In 2017, tech firm Palantir settled a lawsuit by the Labor Department that alleged it discriminated against Asian job applicants in several types of technical jobs.

The problem, the government said, was that Palantir relied too heavily on employees to refer job candidates – more than half of hires came through an employee referral program – disproportionately excluding Asian applicants.

Palantir said the Labor Department’s analysis was flawed.

How to make better, more diverse hires through referrals

Emerson said employee referrals are a smart way for organizations to staff up.

“Who wouldn’t want to hire someone who has a proven track record with colleagues and can work well with the people already in your organization?” Emerson said.

In the past, organizations diversified job referrals by encouraging employees to think about people in their networks who hail from diverse backgrounds. 

“Given the anti-diversity backlash we’re seeing right now, many companies may be less likely to do this right now,” Emerson said. 

But employers can still improve the fairness of employee referral programs, she says.

• Ask every job candidate the same questions and evaluate their answers using the same criteria.
• Conduct candidate debriefs to explore why interviewers prefer one candidate over others.
• Do not disclose to interviewers that a candidate was referred by someone inside the company.
• Consider whether candidates gave stronger answers or have more relevant experience, or did they “vibe more” with interviewers?