An Interview with Soumitra Shukla, Economist at the Federal Reserve

Note: This work represents Mr. Shukla’s views and does not indicate concurrence either by other members of the Board's staff or by the Board of Governors. The economic research and their conclusions are often preliminary and are circulated to stimulate discussion and critical comment.

(1) India's caste system was abolished in the 1950s, yet your working paper 'Making the Elite: Top Jobs, Disparities, and Solutions,' suggests that caste advantages continue to play a significant role in Indian job searches. As you state: "employer willingness to pay for an advantaged caste is as large as that for a full standard deviation increase in college GPA." Given the severity of this discrimination, what solutions would you propose?

Caste categorizations done by the government are rooted in the economic, material, and political history of India. They are not immutable facts but forged over socio-political and historical processes spanning decades. Therefore, while one could theoretically prevent collecting information directly related to “caste,” it is difficult to use simple legal decrees to eradicate the myriad caste advantages that often work through other indirect channels.

Caste continues to have an indirect hold in modern, urban-educated India (despite being formally abolished) through many indirect characteristics. These characteristics include accent, dialect, schooling, neighborhood, parental background, upbringing, and cosmopolitan attitudes, all of which continue to divide a “post-caste” society along caste and class lines. The possibility of encountering Eliza Doolittle, the flower girl in Pygmalion, who completely transforms her social class is slim. Social class typically follows one everywhere---largely because it determines educational, social, career, and marital prospects---and, is therefore, not easily malleable.

Social class, caste, or ethnicity are also often judged through indirect characteristics like the ones mentioned above. Additionally, judging someone through indirect characteristics that are correlated with social categories is hard to outlaw. People routinely form impressions about someone based on a variety of social signals or cues. Given the ubiquity of such judgements, other solutions might be needed to diminish class advantages in accessing elite firms and colleges.

My research suggests that a subsidy to hire members from historically disadvantaged castes would be a cost-effective method to diversify elite hiring. This subsidy also acts like an implicit tax for hiring advantaged castes. Such a subsidy has been discussed both in academic writings as well as in deliberations of the Indian government to diversify elite hiring in the Indian private sector. Such incentive schemes are also likely to better capture the multi-faceted nature of India’s diversity compared to other solutions, such as rigid hiring quotas.

One of the main contributions of my paper is to provide the first evidence on the efficacy of potential policies (subsidies, pre-college test score improvements, and quotas) to diversify elite hiring in the Indian private sector.

(2) In concluding your working paper, you remind readers that "No paper is exhaustive. Future research could collect similar data to detect less visible forms of discrimination in other parts of the world. Other works could also examine the evolution of the caste penalty beyond the first job. Experimental follow-ups studying different firm-level policies such as standardized interview questions, decision review, and interviewer representation are also promising areas for future exploration." Moving forward, what further research do you hope to conduct?

Another key finding in my paper is that “cultural fit” matters a lot to employers in making hiring decisions, even conditional on performance in other screening rounds. I hope to collect data on the early- to mid-career trajectories of students in my sample and examine whether subjective impressions of “fit” (proxied through personal interview scores) are strongly correlated with on- the-job performance, promotions, and earnings growth later in workers’ careers.

I also have a separate research agenda that aims to better understand the role of socio-emotional skills in determining initial earnings and career trajectories of workers.

(3) At the moment, you are also working on a research project titled 'Socio-Emotional Skills, Academic Performance, Job Search, and Jobs at a Top U.S. Business School.' In the paper, you explain: "Preliminary descriptive results suggest that gregariousness and industriousness are important predictors of earnings upon graduation." Could you elaborate on the potential rationale and reasoning for this phenomenon? How can people apply this understanding into their own lives?

This is preliminary work, so I would be hesitant to provide interpretations that are specific to the research project at this point. However, it is relatively simple to explain the broad motivation behind this work. The economics literature has consistently shown that traditional cognitive measures (e.g., standardized test scores) do not explain most of the variation in labor market success.

Simultaneously, the literature has also shown that “socio-emotional,” “non-cognitive,” or “soft skills” are important in explaining labor market returns, often over-and-above those explained by cognitive measures. However, little is known regarding the mechanisms through which such skills operate. For example, does a certain socio-emotional skill impact my earnings because it directly makes me more likely to search among finance jobs or because that skill indirectly helps me get better grades in college thereby also affecting my odds of being hired by high-paying finance firms?

I hope to explore and provide answers to similar questions in future work. Doing so would also help better unpack the “why” underlying the strong correlations documented by the previous literature between socio-emotional skills and labor market success.

In terms of daily applications of this understanding, I would say the point is that test scores are not everything and that it may be useful to develop other skills. This is commonly understood but it is good to provide evidence and dig deeper into understanding why this may be the case.

(4) As established in previous questions, your research has allowed you to analyse the competitive job markets of both India and America, two of the world's leading economies. What similarities and differences were you able to notice between the two, and how do you think hiring practices will continue to evolve in each?

At the onset, let me note that the response below does not necessarily apply to the hiring process from the U.S. business school, which is the focus of my ongoing work mentioned above. Rather, the comparisons below are drawn from a vast literature in economics and sociology, almost all of which is cited in the paper that is the focus of your first question to me.

Elite entry-level hiring in India is very standardized. Almost all hiring happens through placement offices of colleges that set specific rules regarding the timing of job offers, their acceptances, and so on. On the other hand, elite entry-level hiring in the U.S. is typically decentralized. While most U.S. schools have placement offices, these offices are more “hands off” compared to the placement offices of Indian colleges.

However, there are many similarities between elite hiring in both India and in the U.S. Lauren Rivera’s book, Pedigree: How Elite Students Get Elite Jobs shows that “cultural fit” matters a lot for employers in the U.S., even conditional on many other objective qualifications. Employers prioritize cultural fit largely because they believe that, unlike job skills, “fit” cannot be easily taught. The book also shows that nearly 80% of the surveyed professionals in 120 elite U.S. firms endorsed the use of an interview evaluation heuristic called the “airplane test” or the “flight test”: basically, would I like to be stranded in an airport or a flight for several hours with the candidate? Therefore, cultural similarities judged by subjective screening practices are quite important in the hiring practices of elite U.S. firms.

As my paper also documents, such subjective screening practices are common in elite multinational corporations (MNCs) hiring in India. Indeed, most of the elite MNCs hiring in India are U.S. and European firms, so it is not surprising that they export their personnel screening practices to other countries where they also hire candidates from.

In my opinion, hiring practices are likely to become more centralized or mechanized going forward. A large part of this change may be due to Covid-19. I do not think that subjective screening practices (like, non-technical interviews) would go away completely, largely because it is common for people to form subjective opinions about others (whether warranted or not).

Mr. Shukla is an Economist at the Board of Governors of the Federal Reserve System. He works in the Emerging Market Economies section of the Division of International Finance and conducts research on a range of topics in labor economics, development, and economics of education.

He is also a research affiliate of the department of economics at Yale University and a co- organizer of the Fed Applied Micro junior group (FAM Jr.), a system-wide working group for junior microeconomists from the Chicago Fed, Minneapolis Fed, NY Fed, Federal Reserve Board, Philly Fed, Kansas Fed, Dallas Fed, Atlanta Fed, Boston Fed, and SF Fed to meet and discuss early-stage ideas.