Should Firms Move Talent from the Geographic Periphery to Hubs? A Strategic Human Capital Perspective

A longstanding literature holds that firms should hire and move talent from the geographic periphery to hubs as a means to create value from human capital. They do so, however, at the risk of losing the worker to rivals located in the same geographic hub, limiting their ability to capture value in this way. Our study explores both value creation and capture from hiring workers from the periphery and moving them either to headquarters or a peripheral location. We estimate the human capital rents accruing to the firm, i.e., the value created net of recruitment, training, and turnover costs. A unique dataset compiled from a large Indian technology firm allows us to exploit the randomized assignment of workers to headquarters and other peripheral locations to provide robust econometric estimates. We find that workers hired in small town locations and moved to headquarters exhibit higher turnover to competitors but also slightly improved performance, compared to being deployed in peripheral locations. In sum, back-of-the-envelope calculations suggest that net rents from human capital are similar whether new recruits from smaller towns are assigned to headquarters or peripheral locations. This suggests that moving workers hired from the periphery to production centers in peripheral locations might be an alternative to moving workers from the periphery to the hub. Fine-grained data of optional career development courses completed by workers shed light on the mechanisms. Our results contribute to the literatures on firms and migration, creating and capturing value from human capital, and worker turnover. 1 Choudhury Prithwiraj: Harvard Business School, (e-mail: pchoudhury@hbs.edu). Sevcenko Victoria, INSEAD. Khanna Tarun, Harvard Business School. The authors would like to thank Lauren Cohen, Lawrence Katz, Bill Kerr, Dylan Minor, Pian Shu, Claudia Steinwender; seminar participants at Duke, Harvard University, the International Economic Association (IEA) meetings in 2011 in Beijing, INSEAD, London School of Economics, the Seventh International Conference on Migration and Development, University of Oxford, NYU Stern School of Business, Washington University St. Louis, Wharton, and the World Bank DECTI seminar for their comments on a previous draft. 2