The constraints to the growth of medium-sized firms is a question of great policy relevance given their large role in the economies of developing countries. Academic research holds that the dearth of adequately skilled workers is an important factor limiting firm growth (IGC 2014). More recent empirical work (Hardy and McCasland, 2015) suggests that labour market frictions that make it difficult for firms to identify and retain skilled workers are yet another piece of the puzzle. To this end, we plan to use a randomised experiment to answer the following questions:
- Do labour market frictions associated with hiring limit firm growth in India?
- Can online marketplaces providing skills assessments reduce these constraints?
Skill assessments have the potential to reduce labour market frictions for a variety of reasons. These assessments allow employers to rapidly screen a large pool of potential employees and can provide information about jobseekers that is less subject to human error or bias (Autor and Scarborough 2008; Hoffman, Kahn and Li, Forthcoming). Expanding the use of skill assessments and improving the information they provide to employers may be a low-cost way of addressing labour market frictions relative to other interventions, including wage subsidies or government-run apprenticeship programmes (Hardy and McCasland, 2011; De Mel, McKenzie and Woodruff, 2013). Thus, this work will contribute to the limited empirical research investigating how labour market frictions affect firm growth in developing countries and shed light on cost-effective interventions to overcome these frictions.
To the test our hypotheses, we will carry out a randomised experiment in India, an economy characterised by an extensive network of workers and medium-sized enterprises, as well as an increasing reliance on skill assessments. We plan to carry out this evaluation by partnering with Aspiring Minds, a pioneer in the provision of skill assessments. Like most skill assessment companies, Aspiring Minds currently provides a range of assessments for different job roles, which can be used to rapidly screen a much larger number of candidates than would otherwise be possible. We will provide these assessments to 5 medium-sized companies located throughout the country. Within each company, we will randomly select certain job postings to be assigned to the treatment group. For these selected positions, candidates will be asked to take a skill assessment and their scores will be shared with recruiters and hiring managers.