Silicon Valley’s Dilemma Over Credentials

Comment

Silicon Valley has been heavily derided by the media these past few months, on everything from Google executives forcing senior citizens out of their homes and founders accused of sexually harassing women to startups stealing reservations and parking spots. Despite the shrill news around “JerkTech,” I believe that Silicon Valley on the whole is fundamentally a decent place, one that tries to create opportunities for the world rather than diminish them.

To see this, take a look at our industry’s efforts to make the acquisition of credentials more open and democratic, particularly around those in education. Today, the most important credentials for new graduates continue to be college name, GPA, major, and internship employer names. Yet, many of these credentials are extremely difficult to afford. Average university tuition has skyrocketed over the past few decades, and internships in most industries are rarely paid (except in our industry, where even high school students can earn thousands per month).

Some notable people are trying to change this situation. Peter Thiel, who has warned of a “college bubble” due to the cost of higher education, has sponsored the eponymous Thiel Fellowship, which provides a set of twenty students under the age of 20 annually with $100,000 to drop out of college and work on their ideas.

Thiel is hardly the only one hoping to transform our society’s obsession with college degrees. The entire premise of massively-open online courses (MOOCs) like Coursera and Udacity is to uncouple the knowledge gained from courses from the slips of paper offered at graduation. Both now offer their own credentialing systems, which over time could offer an alternative credentialing model that would be more affordable for workers.

Unfortunately, Silicon Valley’s efforts here have mostly centered around changing the credentials themselves rather than reducing demand for them in the first place. And that is the serious conundrum facing entrepreneurs hoping to build a more meritocratic and open labor market.

Competition is rising for the best jobs in the economy as more people apply for a limited set of opportunities. As our technologies have improved the nation’s productivity, there has been a decrease in good jobs available to workers (this data is discussed more below). Yet, the human population continues to grow in much of the world, with the United States alone projected to reach 400 million people by 2051, up from around 300 million today according to the Census Bureau.

With such a labor environment, credentials are becoming even more crucial in differentiating talent, the exact opposite goal we are striving towards today. While it is hardly desirable to reverse our efforts around productivity, if we hope to change the way credentials are used in our economy, Silicon Valley should emphasize more of its resources around rebalancing the labor market rather than merely changing the pieces of paper used.

The Productivity Crisis

In a short book from 2011, Gallup chairman Jim Clifton wrote that “the coming world war is an all-out global war for good jobs.” He heavily underlined the importance of “good jobs,” which can be defined as jobs that provide a stable, regular income in exchange for work. The challenge for policymakers is that good jobs are declining as a percentage of the overall workforce, an effect largely driven by growing productivity from technology and economies of scale.

While Washington often fixates on the unemployment rate as the barometer for the country’s economic health, that statistic is heavily misleading, since it assumes that any work is better than no work. As can be seen in data from the Bureau of Labor Statistics, the jobs being created by our economy are increasingly “bad” jobs – those jobs that are highly unstable, provide few benefits, and have little hope for advancement.

This is a productivity crisis, brought on by the incredible advancement of technology by Silicon Valley. In almost any context, greater productivity is something to rejoice. With less labor required to build outputs, we can enjoy more of the fruits of our economy without increasing our workloads.

The challenge has been that those fruits have not been shared well, but rather have been increasingly concentrated in a narrow elite of the population. Middle-class jobs are disappearing and are being replaced almost entirely with lower-class jobs. Even with taxes and income-transfer programs like Social Security and TANF, we don’t have robust mechanisms to guarantee that workers left out of the elite workforce still have the means to have a decent and stable lifestyle.

Silicon Valley seems to be more reflective about this topic these days. Just this week, Google’s chief executive Larry Page talked with venture capitalist Vinod Khosla about the future of the 40-hour workweek. Page, quoted in Mashable, said “… the idea that everyone needs to work frantically to meet people’s needs is just not true.” He noted that while work was necessary for humans to “feel needed,” the solution to our current employment crisis was to reduce the workweek rather than just eliminate jobs.

There are certainly ways that technology can be used to make discovering work easier, particularly for those who want to stitch together several part-time jobs into a full work schedule. As I speculated earlier this year about what such a labor protocol might look like, it seems that we have an opportunity in Silicon Valley to radically redefine how work gets done.

But those hopes and opportunities don’t change the reality facing families across America. Productivity growth has made many people irrelevant in our economy, and will continue to do so well into the future. That means fewer good jobs, even though the number of college graduates is increasing.

The Everlasting And Narrow Power Of Credentials

Silicon Valley has a complicated relationship with credentialing, often arguing for the democratic elitism of “meritocracy,” emphasizing proven results and one’s actual ability to build products. In reality, it still clings to the same credentialing system used by the rest of the economy, where brand names, particularly those in education, have disproportionate power in the labor market.

That has always been part of the irony with Peter Thiel, who holds two degrees from Stanford yet encourages others to drop out through the Thiel Fellowship. It’s also doubly ironic since many of these dropouts end up returning to school, as we noted earlier this week.

Let’s talk a bit about credentials themselves, a concept I have thrown around a bit without adequately defining. A credential in the labor market is some sort of heuristic about the future performance of a worker. Since an employer has not properly vetted a potential employee through actual job performance (interns are an obvious exception), it must rely on past data to predict success in a role.

Ideally, an employer would spend significant time poring over a candidate’s records, reading their previous output of college essays and GitHub contributions. In reality, such search costs are hard to bear, particularly since keen competition for jobs has increased the size of applicant pools.

The best credentials obviously provide high signal. These credentials provide a way to segment a group of job applicants into two groups, one with high potential for success, and the other with low or lower potential. The smaller and more accurate the identification of the first group is, the better. If a certain credential could screen all but one candidate out of the applicant pool who had a guaranteed chance of success at a new role, it would be perfect.

But signal is just one factor that makes a great credential. Recognition matters a lot too. Presenting a research paper at a specific computer science conference might be incredibly prestigious, but if no recruiter understands the signal inherent in such a talk, then it is mostly useless from a labor market perspective. There is a balance then, between having too few people with a credential and making it irrelevant, and having too many people with a certain credential making it low signal.

To get a sense of what these numbers look like, take a look at the enrollment size of top universities like Harvard and Stanford. Nearly all top schools ranked by US News hover between 1,000 and 1,700 students per class, with some notable exceptions like Caltech having fewer students. In fact, it is only at #16 with Cornell and #20 with the University of California – Berkeley that we see entering class sizes significantly deviating from this rule.

In addition to signal and recognition, a credential must also be simple to understand and widely comparable. Having an engineering team read over the source code of a candidate is probably one of the best ways to see a potential engineer’s performance. But with limited time, that mass of data is often projected down to a single number like GPA or number of stars on GitHub. This also allows candidates to be compared in an ostensibly more “objective” manner even if they have widely different backgrounds.

If these three factors were all that mattered, then startups would have a great shot at transforming credentials. Much like startups are disrupting FICO Scores and the measurement of credit worthiness with better data, it would seem obvious that better data could change the way recruiting works. Imagine taking advantage of all the data available from a candidate’s portfolio and using machine learning to judge a candidate on a small scale of numbers. There are startups like Gild which are doing exactly this.

The problem for Silicon Valley is that credentials are not just used as devices for recruiting, but instead as a means of social proof. Companies in industries as diverse as Google, McKinsey, and Goldman Sachs want to select graduates with certain credentials to maintain a certain “culture” or “fit.” In fact, some industries like management consulting are entirely predicated on hiring for these sorts of credentials. Clients often care about the credentials of the professionals they employ, and they are hardly going to look into constructed metrics by startups to judge their lawyers, bankers, or investors.

Given all of these factors, companies are going to continue to demand candidates with certain credentials, because it makes their job easier and it ensures a certain culture that may be more difficult to develop through other means.

Solving Credentials On The Demand Side

So, we have fewer good jobs being created due to our productivity growth, and we know that companies desire candidates with better credentials than those with worse credentials, because it is simpler and safer. Thus, in a tough labor market, credentials are crucial for workers hoping to secure a good job in our economy. As competition increases for a limited number of slots, the standard required to secure a particular position also rises, which means that certain credentials become even more important just to get employment.

This basic analysis is known intrinsically by most middle-class families in the United States, and explains why so many parents send their kids to college, even though the kids may not be ready or interested in such a pathway. Nearly any professional job requires a college degree today, a simple function of the depth of the labor talent and the shallowness of the labor demand.

Given this analysis, I would argue that startups are working on the wrong set of challenges. They should be much more focused on creating good jobs, rather than trying to minimize the use of credentials in employment or transforming those credentials into something more open. The value of credentials will automatically decrease if our labor markets are more balanced between workers and corporations.

We don’t have to cognitively travel far to see this – just take a look at our own industry. As demand for engineers has increased because of Silicon Valley’s booming startup ecosystem, there is now much more interest in looking beyond the typical college degrees and academy companies. The demand for labor is the only value for a startup like Gild, which attempts to discover engineers who might not otherwise show up on a company’s recruiting system, because maybe they lack the typical college credentials or their work on open-source projects is not fully appreciated.

To see the opposite trend, take a look at a professional labor market like legal services. There, the top jobs go almost exclusively to students graduating from the “T–14” set of top law schools. The difference in work outcomes is staggering. Take a look at this graph from the National Association of Law Placement. Those entering the top firms will make an income around $160,000. Otherwise, the typical job pays around $50,000, or maybe even hourly these days. Due to the glut of new lawyers, legal credentials have unbelievable power on the job outcome here, unlike in Silicon Valley for engineers.

Credentials are an ingrained part of how we judge candidates, and startups trying to change this culture are facing a Herculean task trying to persuade human resources professionals to adopt a new paradigm. But we do have the ability to make credentials less useful if we can provide better income opportunities and increase the competition for talent.

Photo by Flazingo used under a Creative Commons 2.0 license.

More TechCrunch

After Apple loosened its App Store guidelines to permit game emulators, the retro game emulator Delta — an app 10 years in the making — hit the top of the…

Adobe comes after indie game emulator Delta for copying its logo

Meta is once again taking on its competitors by developing a feature that borrows concepts from others — in this case, BeReal and Snapchat. The company is developing a feature…

Meta’s latest experiment borrows from BeReal’s and Snapchat’s core ideas

Welcome to Startups Weekly! We’ve been drowning in AI news this week, with Google’s I/O setting the pace. And Elon Musk rages against the machine.

Startups Weekly: It’s the dawning of the age of AI — plus,  Musk is raging against the machine

IndieBio’s Bay Area incubator is about to debut its 15th cohort of biotech startups. We took special note of a few, which were making some major, bordering on ludicrous, claims…

IndieBio’s SF incubator lineup is making some wild biotech promises

YouTube TV has announced that its multiview feature for watching four streams at once is now available on Android phones and tablets. The Android launch comes two months after YouTube…

YouTube TV’s ‘multiview’ feature is now available on Android phones and tablets

Featured Article

Two Santa Cruz students uncover security bug that could let millions do their laundry for free

CSC ServiceWorks provides laundry machines to thousands of residential homes and universities, but the company ignored requests to fix a security bug.

15 hours ago
Two Santa Cruz students uncover security bug that could let millions do their laundry for free

OpenAI’s Superalignment team, responsible for developing ways to govern and steer “superintelligent” AI systems, was promised 20% of the company’s compute resources, according to a person from that team. But…

OpenAI created a team to control ‘superintelligent’ AI — then let it wither, source says

TechCrunch Disrupt 2024 is just around the corner, and the buzz is palpable. But what if we told you there’s a chance for you to not just attend, but also…

Harness the TechCrunch Effect: Host a Side Event at Disrupt 2024

Decks are all about telling a compelling story and Goodcarbon does a good job on that front. But there’s important information missing too.

Pitch Deck Teardown: Goodcarbon’s $5.5M seed deck

Slack is making it difficult for its customers if they want the company to stop using its data for model training.

Slack under attack over sneaky AI training policy

A Texas-based company that provides health insurance and benefit plans disclosed a data breach affecting almost 2.5 million people, some of whom had their Social Security number stolen. WebTPA said…

Healthcare company WebTPA discloses breach affecting 2.5 million people

Featured Article

Microsoft dodges UK antitrust scrutiny over its Mistral AI stake

Microsoft won’t be facing antitrust scrutiny in the U.K. over its recent investment into French AI startup Mistral AI.

17 hours ago
Microsoft dodges UK antitrust scrutiny over its Mistral AI stake

Ember has partnered with HSBC in the U.K. so that the bank’s business customers can access Ember’s services from their online accounts.

Embedded finance is still trendy as accounting automation startup Ember partners with HSBC UK

Kudos uses AI to figure out consumer spending habits so it can then provide more personalized financial advice, like maximizing rewards and utilizing credit effectively.

Kudos lands $10M for an AI smart wallet that picks the best credit card for purchases

The EU’s warning comes after Microsoft failed to respond to a legally binding request for information that focused on its generative AI tools.

EU warns Microsoft it could be fined billions over missing GenAI risk info

The prospects for troubled banking-as-a-service startup Synapse have gone from bad to worse this week after a United States Trustee filed an emergency motion on Wednesday.  The trustee is asking…

A US Trustee wants troubled fintech Synapse to be liquidated via Chapter 7 bankruptcy, cites ‘gross mismanagement’

U.K.-based Seraphim Space is spinning up its 13th accelerator program, with nine participating companies working on a range of tech from propulsion to in-space manufacturing and space situational awareness. The…

Seraphim’s latest space accelerator welcomes nine companies

OpenAI has reached a deal with Reddit to use the social news site’s data for training AI models. In a blog post on OpenAI’s press relations site, the company said…

OpenAI inks deal to train AI on Reddit data

X users will now be able to discover posts from new Communities that are trending directly from an Explore tab within the section.

X pushes more users to Communities

For Mark Zuckerberg’s 40th birthday, his wife got him a photoshoot. Zuckerberg gives the camera a sly smile as he sits amid a carefully crafted re-creation of his childhood bedroom.…

Mark Zuckerberg’s makeover: Midlife crisis or carefully crafted rebrand?

Strava announced a slew of features, including AI to weed out leaderboard cheats, a new ‘family’ subscription plan, dark mode and more.

Strava taps AI to weed out leaderboard cheats, unveils ‘family’ plan, dark mode and more

We all fall down sometimes. Astronauts are no exception. You need to be in peak physical condition for space travel, but bulky space suits and lower gravity levels can be…

Astronauts fall over. Robotic limbs can help them back up.

Microsoft will launch its custom Cobalt 100 chips to customers as a public preview at its Build conference next week, TechCrunch has learned. In an analyst briefing ahead of Build,…

Microsoft’s custom Cobalt chips will come to Azure next week

What a wild week for transportation news! It was a smorgasbord of news that seemed to touch every sector and theme in transportation.

Tesla keeps cutting jobs and the feds probe Waymo

Sony Music Group has sent letters to more than 700 tech companies and music streaming services to warn them not to use its music to train AI without explicit permission.…

Sony Music warns tech companies over ‘unauthorized’ use of its content to train AI

Winston Chi, Butter’s founder and CEO, told TechCrunch that “most parties, including our investors and us, are making money” from the exit.

GrubMarket buys Butter to give its food distribution tech an AI boost

The investor lawsuit is related to Bolt securing a $30 million personal loan to Ryan Breslow, which was later defaulted on.

Bolt founder Ryan Breslow wants to settle an investor lawsuit by returning $37 million worth of shares

Meta, the parent company of Facebook, launched an enterprise version of the prominent social network in 2015. It always seemed like a stretch for a company built on a consumer…

With the end of Workplace, it’s fair to wonder if Meta was ever serious about the enterprise

X, formerly Twitter, turned TweetDeck into X Pro and pushed it behind a paywall. But there is a new column-based social media tool in town, and it’s from Instagram Threads.…

Meta Threads is testing pinned columns on the web, similar to the old TweetDeck

As part of 2024’s Accessibility Awareness Day, Google is showing off some updates to Android that should be useful to folks with mobility or vision impairments. Project Gameface allows gamers…

Google expands hands-free and eyes-free interfaces on Android