Are Emerging Markets Different from Developed Markets? Human Capital, Sorting and Segmentation in Compensation of Information Technology Professionals

This study investigates how firms compensate IT professionals in an emerging market. Using data on compensation of more than 8000 Indian IT professionals, the study finds evidence that returns on MBA grow or stay constant with overall work experience for IT professionals, a finding consistent with the human capital view, than with the sorting view. We also find evidence for segmentation of labor markets based on firm origin because foreign firms pay significantly more to IT professionals than Indian firms. Finally, we find high returns on technical education but significant heterogeneity in returns on business education at master’s level in India. On the whole, returns on business education at master’s level are not significantly higher than that on experience suggesting a lack of financial incentive to pursue business education at master’s level in India. The returns to IT experience and non-IT experience are significantly higher in India than in the U.S