Bryan Caplan  

A Question of Talent Arbitrage

Of Ad Hominems and Incentives... Senator Flake's Version of Due...

I just received another thought-provoking email about my new book.  Here it is, reprinted anonymously with the sender's permission.  I really had no solid advice for him, but perhaps EconLog readers will...

Good afternoon! I recently picked up The Case Against Education, and thoroughly enjoyed it, so thank you for your contribution.

Like many of your readers, I suspect, my interest in the book was born of reflection on my own educational journey. Even as an actuary that directly applies my college major (math) and subsequent education (FCAS) more than most professionals, I am horrified by how much time and energy I have spent on formal learning. I have also hired young workers into corporate roles many times over, and have often noted how candidates' costly education serves only to keep their resume towards the top of my pile.

After experience working with a couple well-credentialed duds, though, I've had periodic conversations with executives at my company ([redacted]) about whether there's a better way. I'd love to convince your "Good Student" to work for me for four years in some sort of long-term internship, rather than running up tens of thousands in debt in pursuit of their sheepskin; the resulting professional would be light years more employable in year 5 and onward. Ultimately, even assuming I could persuade the Student, it's difficult to convince corporate hiring managers to forego a very strong signal that's paid for by public policy and the students themselves.

I cannot help but think that with this much inefficiency in the system, though, there must be some opportunity for talent arbitrage. I'm curious, since you've spent so much time investigating this topic- have you come across any sort of research on alternative talent sourcing? Perhaps an alternative hiring program that's trying to break the cycle of waste? Your book has practical application for politicians/voters/students, but I'd love to find an incentive for the corporate world to be an agent of change as well.

COMMENTS (15 to date)
Matthew Moore writes:

Convince your employer to offer entry-level two-year positions to underrepresented demographic groups / low income families with good high schooling (who probably weren't going to go to college anyway, but would jump at a half decent corporate job, and are possibly more cash-sensitive than most).

You can spin it as good corporate citizenship, and hopefully after four years on a good development track they will be ready to manage their incoming peers who went to university. That's a pretty clear signal.

DeservingPorcupine writes:

I tried to convince my last employer to recruit talented kids from local high schools for programming jobs. Offer them, say, a three year internship and pay them a salary that would be low for the company but much, much better for the student than paying tons of money in tuition, maybe $25k/year or so.

Couldn't convince them it wasn't nuts.

Chris writes:

Check out Praxis for a college alternative. I'm also an actuary, and as an exam-based profession, it's surprising we don't pursue are non-graduates.

zeke5123 writes:

Isn't that the strongest case against the Case against Education? Maybe there is a Hansonian reading that degrees confer status on the recipient; thus, clients won't hire firms that lack the status.

However, it seems to me that if education isn't terribly useful in creating skills + is costly, then why hasn't someone crafted a business model around utilizing talented 18 year olds? It just seems to fly in the face of economic thought. What obvious point am I missing?

Jonathan Sawyer writes:

Companies need to compete directly with colleges at the time of application to solve this riddle. Companies could create some sort of prestigious 4-year "Youth Development Program" where they contribute to the productivity of the company, while also getting some sort of "diploma" at the end of the 4-year program to signal to society that they have gone through this rigorous training program. It could also benefit the companies as a form of free advertising if this caught on (maybe an "Ivy League" reputation would emerge from the likes of the youth development programs at Apple, Google, Amazon, Exxon, etc.). If the signal was strong enough, a program like this could undermine the status quo.

The UN has something called the Young Professionals Programme where you need a bachelor's degree and can't be older than 32 to apply. A company (probably with 1,000+ employees) could model a recruitment program after this, but change the requirements to a high school diploma, a 19 year old maximum to apply, and a minimum SAT score threshold. They could even model their application off of college applications with statements of purpose, interviews, etc. If the participants felt like they would be missing out on the "college experience", they could even live "on campus" and and have a formal "graduation"; though the programs probably couldn't sustain competitive sports teams, etc.

The major issue I see with this is that it pushes a large cost onto these companies to fix a wicked problem. This would only work if the cost of creating and sustaining this program would be outweighed by the productivity of the participants. If the pay wasn't good enough for the participants, and more likely if the signal wasn't strong enough for future employers then it would be a flop.

Jeff G. writes:

@zeke5123: This was one of Tyler Cowen's points as well. You can see Brian's response here.

Rif writes:

This is solvedish in the software development world. Google (my employer) will happily hire software dropouts who can demonstrate they can code. Having visible open-source code is an easy free way to show enough experience to get interviews. Beyond Google, companies like Triplebyte advertise "no resume needed, just take our coding quiz."

Seth Green writes:

Thiel fellowship? Not an alternative hiring program, but a strong stamp of approval for folks who want to go a different route.

Seppo writes:

I worked as an external consultant at a big German telecom and they had plenty of people directly from high school in apprenticeships. I'm not 100% familiar with all the features, but some people continued on that track all the way to Masters degree in computer sciences / communications engineering with at least some theoretical contact teaching & almost full-time 9-5 job integrated quite nicely. I suppose the company had some kind of deal with a university to handle the formal things.

They had obviously low salaries compared to established & experienced workers and very little vacation as they spent lot of days doing formal exams / lecture parts when they were not working. As far as I understand, they managed to live with the salaries they had and depending on how long they continued they had yearly fixed salary bumps, pretty much guaranteed job and at the end also a formal degree certificate.

I see this quite difficult to manage for smaller companies, but for large ones it would be doable.

For the most talented guys it was bit of a waste. Corporate rules locked them into low level jobs when their capabilities would have allowed more and their managers were unable to raise their salaries even if they'd have wanted. Maybe this protected those guys also so managers could load them too much and they actually had brain capacity left for the theoretical study bits as well.

For the the average guys it was a terrific deal. Instead of suffering 3-4 years in university with almost no income and on loans they earned at least something, had real jobs and no gap after studies desperately searching for job.

Company had very cheap (by german unionised standards) low-level grunts to do lots of the simpler tasks and they groomed more talented guys according to their abilities. Some went to become product managers for meaningless internal products, one started as project manager running pretty significant project right afterwards and technically most capable was already working with developers during their studies and doing practical things beneficial for the company as university programming exercises while getting paid to do so.

What did those guys lack? University life, exposure to outside ideas, etc. They grew up in the company culture and wouldn't shake it in any way. It is difficult to see anyone of those guys reforming the company at all, because it was all they ever knew.

Alberto Zaragoza Comendador writes:

Udacity is the closest I've seen to what this person describes; the nanodegrees it offers are designed to be completed in at most a year and are sponsored by employers with an interest. For example, the one I'm doing on Android development started with 30k participants (plus 30k for the web development track) and was sponsored by Google. The first stage is almost "free" for Google / Udacity as the course is almost entirely automated. But in the second stage (10% of us continue) there is some cost because there is a mentor and your projects are passed (or rejected) by a person.

One question mark and one "strike" against Udacity. The question is how well are people doing after getting these nanodegrees. My impression is that they're doing ok; a friend of mine who was already working in IT did a more advanced Android course (at a cost of about $2000, with half returned for finishing in under a year) and considers it pretty good both content and signal-wise. Of course the very first nanodegree was offered only in 2015 so there's still not much data.

The "strike" is that Udacity's students overwhelmingly seem to be 20 and 30 somethings looking for career development or a career change. I've seen few 18 year olds, and none who has chosen Udacity over college. So while I would *love* to see something like Udacity displacing college, I'm afraid it's going to take a few decades.

Alan Goldhammer writes:

Rif writes,

This is solvedish in the software development world. Google (my employer) will happily hire software dropouts who can demonstrate they can code. Having visible open-source code is an easy free way to show enough experience to get interviews. Beyond Google, companies like Triplebyte advertise "no resume needed, just take our coding quiz."

I said something similar in a response to previous post by Professor Caplan. I wonder what the level of non-degreed coders there are in areas where there is a low barrier to product market entry such as the computer gaming industry.

It's worth noting that coding alone does not solve everything. There is a lot of creative thinking that is required in project development (new search algorithms might be important to a project). A lot of us have developed rudimentary programming skills but that doesn't mean we can step into a complex project.

Seppo writes,

What did those guys lack? University life, exposure to outside ideas, etc. They grew up in the company culture and wouldn't shake it in any way. It is difficult to see anyone of those guys reforming the company at all, because it was all they ever knew.

This is important and one of the things that occurred to me after beginning to read "The Case Against Education." IMO, Socialization is incredibly important and one wonders whether someone moving into a company job in the manner that Seppo describes suffers from lack of exposure. If all they know is the company life, what happens when the company goes away (which does happen).

Roger Sweeny writes:

One of the problems with any sort of long-term internship program is the 13th Amendment and the long tradition in Anglo-American law against forcing people to work to fulfill a contract. Once an "intern" has developed skills, there is little the company can do to force the person to stay. All the money that the company has spent is now lost. (Direct spending would include all the obvious costs of training. Indirect would include paying a wage greater than the intern's skills warrant.)

Students and taxpayers pay for college.

Mark Brophy writes:

I had a summer job in college as a software engineer and the people I worked for told the company management that I was a genius. My college grades were poor. Who did the management listen to? The university, of course! They had no confidence in their employees. The next summer they hired someone else who was unproductive, didn't get anything done.

Mr. Lazy writes:

You could look a little closer at the lives of your recruits outside of school. The willingness to work hard and work selflessly should become apparent with a little investigation on your part.

Or you could just recruit from BYU. No kidding.

Isaac Morehouse writes:

To the author of this email, if you're reading this, send me a message, I'd love to talk.

We do this every day for dozens of companies and hundreds of young people, and it works incredibly well.


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