The frequency with which employers use references is unmatched by the predictive power of references, which have only modest validity, especially if they are not structured. This has led many employers to ask for references only after candidates have been offered the job simply as a standard legal requirement but without taking into account any evaluative judgements made about the candidates.
Why are references not more valid? 1) Because referees have no interest in helping the prospective employers by providing accurate information about the candidate. In fact, if the candidate is worth retaining, the current employer may be less motivated to write a positive reference; but if the candidate is not worth retaining, that may be an incentive to persuade a prospective employer to hire the applicant. 2) Because referees are biased. 3) Because candidates provide names of referees who they believe will comment positively about them. Finally, 4) because all too often the same is said about all candidates requesting a reference (bright, hard-working, reliable, talented, etc.).
The validity of references can be improved by using standardized forms, multiple referees, comparative ranking scales and preserving the anonymity of the referee. Still, the question remains whether in that case referees can provide any additional information to, say, psychometric tests, interviews and biodata.