This paper analyzes job referral effects that are based on residential location.
We use geo-referenced record data for the entire working population and the corresponding establishments in the German Rhine-Ruhr metropolitan area. We estimate the propensity of two persons to work at the same place when residing in the same neighborhood (reported with an accuracy of 500m×500m grid cells), and compare the effect to people living in adjacent neighborhoods. We find a significant increase in the probability of working together when living in the same neighborhood, which is stable across various specifications. We differentiate these referral effects for socioeconomic groups and find especially strong effects for migrant groups from former guest-worker countries and new EU countries. Further, we investigate a number of issues in order to deepen the insight on actual job referrals: distinguishing between the effects on working in the same neighborhood and working in the same establishment - probably the more accurate measure for job referrals - shows that the latter yield larger relative effects. Besides, we find that clusters in employment although having a significant positive effect play only a minor role for the magnitude of the referral effect. We find evidence that informal job markets play the biggest role in small firms and are least important in large firms. When we exclude short distance commuters, we find the same probabilities of working together, which reinforces our interpretation of this probability as a network effect.