A Markov Model of Referral-Based Hiring and Workplace Segregation

I construct a Markov model of referral hiring to look at two issues: inequality between groups and workplace segregation. The model differs from most models of referral hiring in that it explicitly considers a firm structure where employment opportunities arise. The model suggests that referral hiring does not directly produce inequality between groups at the population level, even though firms have a bias toward hiring workers from the same group they already employ. The result highlights a difference between outcomes of referral hiring at the population and individual levels in that individual firm biases balance out when aggregated. However, referral hiring does produce segregation of groups across firms in a given industry, and the degree of segregation monotonically increases in the amount of referral hiring.