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Abstract

We explore the relationship between firms' characteristics and recruitment strategies. We present a search theoretic model with two search channels: a costly formal channel and a costless informal channel (referrals). We empirically test the model predictions and find that: larger firms search more formally; firms search more formally for high‐skilled workers; the positive relationship between firm's size and formal search intensity also holds for firms not using referrals; firms using referrals invest less into formal search compared to firms not using referrals; larger firms hire less often by referrals than smaller firms; and larger search effort leads to more applicants.