The Role of Firms in Fostering Within Country Migration: Evidence from a Natural Experiment in India

High ability individuals can be constrained from commensurate employment opportunities due to their geographic location. In the face of physical, informational and social barriers to migration, firms with nation-wide hiring practices can benefit from facilitating the migration of high ability individuals from low employment districts to regions with better employment opportunities. We exploit a natural experiment within an Indian technology firm where the pre-existence of a computer generated talent allocation protocol allows us to isolate the relation between an employee’s prior home town/village and subsequent performance within the firm. Using unique personnel data for entry level undergraduates and leveraging the fact that the assignment of an employee to one of many technology centers within the firm is uncorrelated to observable characteristics of the employee, we find that employees hired from low employment districts (remote employees) out-perform their non-remote counterparts in the short term. They continue to outperform their non-remote counterparts in the long term once we control for the distance of migration. As a possible explanation of our result, we test for selection and find that employees hired from low employment districts outperform their non-remote counterparts in standardized verbal and logical tests at the recruitment stage. To explain why the firm might be more likely to select high ability individuals from remote districts, we additionally conduct a survey of randomly selected urban and rural colleges and document statistically significant differences in employment opportunities for rural and urban graduates. Our survey results also indicate that not every firm follows the policy of hiring from low-employment districts. 1 The authors would like to thank seminar participants at Duke, Harvard Business School, the International Economic Association (IEA) meetings in 2011 in Beijing, INSEAD, London School of Economics, NYU Stern School of Business, Washington University St. Louis, Wharton and the World Bank DECTI seminar for their comments on a previous draft.