We study ex-post hiring risks in low income countries with limited legal and regulatory frameworks. In our theory of employee referral, the new recruit internalises the rewards and punishments of the in-house referee meted
out by the hiring firm. This social mechanism makes it cheaper for the firm to induce worker discipline. The degree of internalization depends on the unobserved
strength of the endogenous social tie between the referee and the recruit. When the referee's utility is increasing in the strength of ties, referee
workplace incentives do not matter and referee and employer incentives are
aligned: in this case industries and jobs with high costs of opportunism and where dense kinship networks can match the skill requirements of employers
will have clusters of close family and friends, they will show a high incidence of referrals rather than anonymous hiring and will show a wage premium to
referred workers matched by their higher productivity. This no longer applies if the referee's utility is decreasing in the strength of ties: referrals are then more
costly for firms, they will be used less frequently by employers and will require higher referee wages (or status). We illustrate how these insights add to our
understanding of South-Asian labour markets
