  We study the consequences of job markets' heavy reliance on referrals.
Referrals screen candidates and lead to better matches and increased
productivity, but disadvantage job-seekers who have few or no connections to
employed workers, leading to increased inequality. Coupled with homophily,
referrals also lead to immobility: a demographic group's low current employment
rate leads that group to have relatively low future employment as well. We
identify conditions under which distributing referrals more evenly across a
population not only reduces inequality, but also improves future productivity
and economic mobility. We use the model to examine optimal policies, showing
that one-time affirmative action policies involve short-run production losses,
but lead to long-term improvements in equality, mobility, and productivity due
to induced changes in future referrals. We also examine how the possibility of
firing workers changes the effects of referrals.
