It certainly helps to know influential people and to be good with people, but intelligence and skill can make up for it if you're not good with people. People who live by that statement are just looking for an excuse to not work hard.
It increases your probability but it's not a be all and end all
It's more important for labor markets in which either
1. There is little shortage of labor hence there's lots of applicants with similar competencies hence the only differentiating factor between them is the fact that another member of the organization knows him/her or
2. Where people based interaction is of high importance - If you don't even know how to network, you probably won't survive on the job
Where 1 and 2 are absent, your more technical core competencies become the primary differentiator
Some other rationales as to why businesses prefer to hire those whom their members know
1. When a member of the organization recommends someone else, they're essentially staking their reputation for vouching for this person - if he recommends someone and that someone ends up destroying things, that will kill the recommender's reputation as well - hence recommenders have all the incentive to recommend those whom they know will do the job which increases the probability of hiring someone who can do the job
2. The fact that the person knows someone on the organization makes it one step closer to further integrate/socialize the person as a functional member of the organization
It's all about reducing information asymmetry, there is less information asymmetry when organizations hire those they know
Ergo, organizations prefer to hire those whom their members know
I'm not claiming that these rationales are justified, but these are indeed the rationales and whether you like it or not, these trends will probably continue into the future so go and learn how to network
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