Kunal Mangal
Harvard University
Working Paper
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Many countries use exams to allocate government jobs. In India, these exams are so competitive that they can attract over a half a million applications, with an acceptance rate of less than 0.1%. Does the intense competition for government jobs aect aggregate labor supply? To address this question, I study the labor market impact on male college graduates of a five-year public sector hiring freeze in the state of Tamil Nadu, which reduced the available vacancies for administrative positions by about 85%. Theoretically, the impact of the hiring freeze on exam investments is ambiguous, depending on how the returns to studying compare with candidates' outside options. Using a difference-in-differences design that leverages variation across states and cohorts, I find that exam preparation in fact increased. Among men that were expected to graduate from college during the hiring freeze, the like- lihood of being unemployed increased by about 30%. Concurrently, the application rate jumped by about 20 times for the few recruitments that were conducted during the hiring freeze. I provide evidence that these results are consistent with relatively high marginal returns to exam preparation because the returns to studying are convex. A decade after the end of the hiring freeze, I find no evidence that additional exam preparation built general human capital; instead, these cohorts earn less in the labor market. Together, these results suggest that public sector hiring policy in India has the potential to move the entire labor market.

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