Almost everyone wins when it comes to referral hiring, through which an employee recommends someone for an opening at his or her company. The job applicant comes in the door with a personal recommendation and is therefore more likely to get the job. Companies cut hiring costs since referral hires take less time, start the job quicker, and stay at companies longer. The referral hires themselves report higher levels of satisfaction. And the original employee who did the referring often gets a nice cash bonus and a new work friend.

It's a nice, closed-loop system that works out well for everyone - that is, unless you don't have the right network to get the job. Referral hiring isn't great for diversity. Ian Schmutte, an econ professor at the University of Georgia, found that a pair of workers living in the same block are 3 times more likely to work at the same company than a pair of workers living in the same neighborhood. These effects are stronger for workers of the same race and the same gender.

It's not just a matter of valuing diversity for its own sake. Companies with more diverse workforces tend to perform better. A McKinsey report from 2015 found that among 366 companies:

• those with gender diversity outperform those without it by 15%;
• those with ethnic diversity outperform those without it by 35%;
• for every 10% increase in racial and ethnic diversity on the senior executive team at a U.S. company, earnings before interest and taxes rise 0.8%
• millions spent by organizations on inclusion programs largely don't work.

Many of the companies that rely most on employee referrals for hiring also have alleged commitments to diversity that they fail to meet.

• Palantir got in trouble with the Labor Department for relying too heavily on referral hiring, which has led to a homogenization of its workforce.
• Google, Facebook, and Twitter all landed on a recent Glassdoor list of the top 30 companies that use referrals for hiring and have had a hard time hiring non-white and non-Asian male workers.  [Attempts to change the demographics at these companies have been largely ineffective.]

Even if standard referral programs risk reinforcing workplace demographics, there might be a way to turn employee recommendations into engines of diversity. Accenture and Intel, which also have predominantly male and white workforces, started dangling bigger bonuses for diversity hires made through referral programs. Pinterest saw a large increase in diverse candidates when it ran a similar program over a 6 week period last year.

Getting rid of referrals altogether isn't the answer. "Social interactions provide information that is useful to firms that are trying to screen workers for jobs where the skill set is not that obvious or easy. You want to know: Is somebody going to show up to work? Are they going to be a good worker?" Schmutte said. "But because they operate along lines of race or ethnicity, they might still block people off from certain types of jobs."