Does technological growth-induced migration lead to income convergence? The case of India’s early 2000s telecom boom

This paper demonstrates that India’s early 2000s mobile phone service expansion, or the “telecom boom” led to net rural-urban migration of about 13 million individuals out of which 4 million moved for employment. To estimate the effects, we exploit the heterogeneous expansion of telecom services in India after a 2001 auction that allocated licenses to mobile phone service providers, or telecom operators, bidding for the 1800 MHz band of spectrum. We find that the wealthiest 20% of Indian cities received the most migrants, and hence, felt the greatest impact of the resulting labor supply shock. This should have led to income convergence, ceteris paribus. However, we find that telecom growth-induced mobility increased the inter-urban nominal consumption and wage dispersion by 0.02 standard deviation points. We argue that skill-based sorting of migrants could partly explain the migration-induced income divergence. We find that rural residents with STEM education were 0.7 percentage points more likely to move to urban areas than those without STEM education, because of the telecom shock, even though both groups earned a similar migration premium of almost 50%. We speculate that this skill-based sorting occurred due to highly skilled individuals having more access to mobile phones, a telecom-growth induced change in the industry mix, and the relocation of firms employing low-skilled labor from urban to rural areas