Degree Arbitrage

There was a short article in the Economist a few years ago that’s stuck with me. It talks about how foreign firms are taking advantage of “gender arbitrage” in South Korea. In short, women there are just as well educated as men, but are underpaid and mistreated in the workplace. By treating them decently and paying them more than they would make in Korean firms, foreign firms have found they can attract a lot of the best talent and still save money.

It makes me think that companies in the US could do a similar sort of “degree arbitrage”. Increasingly, a college diploma is the new baseline. Even jobs where there’s little or no practical benefit from having a college education still require one, and the income difference between degreed and non- is growing. Add to that evidence that a lot of people don’t actually learn much in college and it sounds like companies could do well by targeting kids with only a high school diploma, particularly college dropouts.

Obviously, this is not universal. A lot of jobs do require skills and knowledge that you have to learn in college, but fewer than you think. Mine, for example. Writing software is much more of a craft than a science. Very little of the stuff I learned in college has been useful, and none of it critical. Everything I need to do my job has been learned on the job or by studying on my own. At best, there’s a semester’s worth of helpful theory. Some of the best developers I’ve worked with either didn’t finish college or didn’t study CS there, and that’s even more true of sysadmins. In the heyday of the early internet, the demand for technical staff was so great, and so few people had relevant credentials, that a lot of people got drafted into jobs they could never get hired for today. They did just fine, and many of them are still running the internet and keeping large, high-availability sites going.

The most ridiculous case I’ve seen recently was a friend with twenty-plus years of experience who got turned down for a job because he dropped out of college a semester or two shy of a degree. Why does that sort of thing happen? I suspect it’s a mix of laziness and cowardice. It’s easier to require credentials than evaluate people, and butt-covering HR people are safe as long as their criteria are objective; they aren’t graded on relevance. And if they reject a great hire, they’ll never know.

If companies started looking at what skills and abilities are actually needed for a job, I bet they’d find that they could hire a lot of non-degreed people (and that many people with degrees aren’t qualified after all). The most obvious thing would be to accept real-world work experience as a substitute for a degree.

This could also be an opportunity for recruiting firms. Doing a proper evaluation of applicants’ skills and abilities would be a lot of work. Most companies don’t hire enough people to get good at it, but recruiters work with lots of applicants and could track their success across different companies. They could invest in finding good non-degreed candidates, charge an extra mark-up for placing them, and still save employers money. The recruiters have a reputation to protect, and so would have an incentive to do a decent job of screening.

This is one case where self-interested capitalism comes down on the side of the angels, where it pushes against privilege and for social mobility. It’d be cool to see this happen.