Abstract
Many firms hire workers via social networks. Whether workers who are socially connected to their employers exert more effort on the job is an unsettled debate.
We address this question through a novel experiment with small-business owners in Tanzania. Participants are paired with a worker who conducts a real-effort task, and receive a payoff that depends on the worker’s effort. Some business owners are randomly paired with workers they know, while others are paired with strangers. We find that being connected to one’s employer does not affect workers’ effort on average, but increases the effort of workers without children. Our results are consistent with workers having an altruistic drive in exerting effort when they work for someone they know, which fades away when their valuation of private income becomes stronger.
