My Interview on the Education Trends Podcast

I recently spoke with the team at the Education Trends podcast about my book, Rethink the MBA, as well as the topics I’ve written about at Meritmark, including: higher education’s competitive moat, the achilles heel of higher education, and the dawn of transparent education.

I encourage you to download the latest episode and give it a listen. You can find the Education Trends podcast on iTunes, Stitcher, or Spotify. I hope you enjoy the conversation as much as I did.

Thanks for listening (and reading), and I’ll be back next week with more articles on the future of work and higher education.

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Why is a College Degree Valuable?

I examine the usual answers to this question in light of the rapid changes in technology and formulate a new theory as to why college is valuable: the Signal-to-Skills theory.

Dueling Theories

One of the major debates in higher education is: “Why is a college degree valuable?” This debate has largely boiled down to one of two arguments. The first, popularized by economist Bryan Caplan in his book “The Case Against Education”, is that graduating from college sends a signal to employers that you are intelligent and employable. Furthermore, this signal is more important than the specific courses you took in school. This is called the “signaling theory” of higher education. This theory predicts that where you attend college is more important than what courses you take, and that graduating is more important for your career than completing individual courses.

The second argument, called the “human capital theory”, is that the knowledge, skills, and tools you acquire in school are what makes a college degree valuable. Human capital theory predicts that each additional course you take makes you more and more valuable to employers. This theory assumes that employers can accurately assess the knowledge, skills, and tools you have, and use this information to determine whether or not to hire you. This theory predicts that taking more courses is better than fewer courses, and some college is better than no college.

One argument in favor of the signaling theory of education is that salaries of students who only completed say, 50% of their college credits, do not get a pay increase that is 50% of what a college graduate makes. This implies that the value of a college degree is based on crossing the finish line, rather than completing any one course. A second argument would be the collective shrug that employers have shown towards students that have “completion certificates” from online education programs, like EdX or Coursera. The “human capital” theory would predict that these courses would have more value in the job market.

On the other hand, the human capital theory is supported by the fact that there is a growing “skills gap” in the world of work. My recent article on the Manpower Group, one of the world’s largest staffing agencies, noted that 45% of employers have difficulty filling roles. Employers cite both the “skills gap” (27%) (a lack of hard and soft skill abilities), and inexperience (20%) as driving factors. Clearly, employers are monitoring the skills that graduates are lacking, and improving these skills through education would increase the value of a student in the job market.

How do we resolve the contradiction between these two theories of college value?

Hiring Managers

My hypothesis is that companies screen job candidates based primarily on either credentials OR skills. Hence, whether “signaling” the possession of a credential is more important than learning individual skills, depends on the way companies have hired historically.

For example, imagine an industry like investment banking, where banks only hire from the Top 20 colleges. In this industry, you won’t be hired without a college degree from a top school, let alone without a college degree altogether. This is a credential-based hiring process. Yes, the bank may give candidates a skills assessment during the interview, such as having them build a financial model. However, since every job applicant has a college degree, the “signal” variable will dominate the analysis: employees who have completed college will have higher wages than non-college graduates.

On the other hand, imagine an industry like photography. In this industry, the hiring process is not geared around where you went to school, or even, if you went to school at all! The hiring managers look at online portfolios of the candidates actual photography. This is a skills-based hiring process. In this industry, whether you went to college or not is largely irrelevant. Hence, the “human capital” variable will dominate in this industry: employees who have the most “skill” at photography will have higher wages than those with less skill, regardless of whether or not they have a degree.

In Caplan’s book, he shows concrete analysis that the “signal” of having a college degree has been more important historically than the “skills” acquired by taking specific classes. This tells us that on average, the job market in the U.S. has been historically dominated by employers that use credential-based hiring.

Signal-to-Skills Theory of Education

But, what if the hiring process was shifting, from a credential-based hiring process to a skills-based process? The implication would be that both the signaling theory and the human capital theory have validity, but their importance is changing over time. Indeed, I have argued that the signaling theory of higher education has more validity today. However, I also see evidence that employers are shifting from valuing credentials to valuing skills. The reason for this change is technology.

I call this idea the Signal-to-Skills theory of education: the higher the level of technical skill required in a specific industry or career, the more important the specific knowledge, skills, and tools, you have will be compared to whether or not you have a degree.

This theory predicts the following dynamic:

s2sedu.png

As technological change increases over time, the value of education will be driven more and more by skills, and less and less by signaling to employers that you have a credential, degree, or certificate.

Signal-to-Skills Theory of Hiring

Interestingly, when we consider the Signal-to-Skills theory at the level of an individual company, we get a different chart:

s2shiring.png

The Signal-to-Skills theory of hiring predicts that as a job becomes more technical, employers will be forced to switch from a credential-based hiring system to a skills-based hiring system. This switch is not gradual. Instead, it happens suddenly as the company changes the way they evaluate job candidates from credentials (e.g. resumes) to skills (e.g. work samples) over a short period of time.

Predictive Power

The reason the ideas above are “theories” is that we can use them to make predictions, and then test the predictions against what actually happens in the future. I will be using this framework to make predictions and testing my own performance over time. On Friday, I will be looking at recent news from Make School, a higher education startup in Silicon Valley navigating these changes, and exploring what the Signal-to-Skills theory predicts about their future performance.

Until then, enjoy your new mental model, and let me know whether it rings true in your school or industry.

Indiana Wins the Workforce Lottery

On Thursday, Indiana became the second state, after Colorado, to partner with the Markle Foundation to promote Indiana’s transition to a skills-based economy. Markle’s workforce non-profit, Skillful, will lead the charge with the support of Walmart, LinkedIn, and Purdue University.

Everyone can find Indiana and Colorado on a map. Walmart and LinkedIn (now, part of Microsoft) are leading tech companies. Purdue University is a leader in Transparent Education as one of the first Universities to offer Income Share Agreements to its students (excuse me…boilermakers!). But, who exactly is the Markle Foundation and what is Skillful?

Software, Airplanes, and Coal Mines.

The United States is home to 6 of the world’s 10 largest charitable foundations, with combined endowments of ~$100 billion. The largest of these is the Gates Foundation (~$50 billion). In addition to the modern computer era, we have Bill Gates to thank for the ascendance of charitable foundations as drivers of social innovation. Historically, foundations supported a diverse array of causes, but thanks to the Gates Foundation, more are taking a Jack Welch approach to giving, and trying to truly excel in their charitable niche. The Gates Foundation is obviously dominant in the field of global health, while the Howard Hughes Medical Institute (~$22 billion) is pre-eminent in medical research.

And so it is with the Markle Foundation, which had pursued many initiatives over the years before starting to focus deeply on the American worker in 2013. Today, when it comes to the World of Work, I would argue that the Markle Foundation sits in pole position, despite the lack of a well-known eccentric billionaire behind its name. Unlike Bill Gates or Howard Hughes (the 1930’s version of Elon Musk, for airplanes), the Markle Foundation was founded by a philanthropist coal mining magnate, John Markle, famous for constructing a gigantic drainage tunnel in 1894 to reclaim flooded coal fields in Pennsylvania. The foundation, seeded with a mere $15 million in 1933 has since grown to ~$115 million today.

The Foundation’s focus on the World of Work began as the outgrowth of a 50-person brain trust, including Madeleine Albright (former U.S. Secretary of State), Marc Benioff (founder, Salesforce), and Jeff Weiner (CEO, LinkedIn) called “Rework America”. This coalition of broad-thinkers produced a book published in 2015 called, “America’s Moment”. Instead of telling you what it’s about, I’ll show you.

Watch this for two minutes with a cup of coffee this morning and try not to feel inspired:

If you don’t have 2 minutes (or forgot to bring your earbuds to work), here is the idea:

Every American has a meaningful place in the new economy. 

The book itself, sitting here in front of me, focuses on three prescriptive areas of focus, all necessary to make the statement above come true:

  1. Preparing people to succeed: the notion that high school or college diplomas are the “only” signals of people’s abilities doesn’t mesh with technological changes that require a culture of lifetime learning.
  2. Using data to innovate jobs and technology to match employers to workers: the idea that data and analytics can be used more efficiently to help people find meaningful work, today.
  3. Transitioning to a “no-collar” world of work: the need to move beyond “blue-collar” or “white-collar” and develop new ways to categorize and credential people’s talent.

The publication of this book is the place where most Foundations would have stopped, relished the moment, and moved on to the next philanthropic trend. Instead, the Markle Foundation put skin in the game and began funding a new initiative that same year, called Skillful, with $15 million a year to make these ideas happen.

Skillful

Like any good startup, Skillful began experimenting in a small geography to see what ideas from Rework America could be tractable. One of the first experiments (since discontinued), in partnership with LinkedIn and Colorado, was called LinkedIn Training, which helped job seekers find educational offering for in demand jobs (see below):

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Since then, Skillful has continued to push forward with initiatives that fit the broad theme of using data to connect workers and employers in ways that do not rely solely on high school or college credentials. Fast forward three years, and the progress made by Skillful has been impressive.

First, workers in Colorado have access to a host of tools to connect them to high paying jobs. Take for example the Hot Jobs tool, which focuses on helping workers gain the skills required in the IT, Advanced Manufacturing, and Healthcare industries. Workers can see job postings in these industries and access analytic “snapshots” (see below) of the most common positions:

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Data tools such as the one above, enable workers to find jobs that could be of interest, and then pursue educational pathways to get there.

Second, Skillful is training key employees in nonprofits, workforce centers, and community college on how to use data-driven career coaching, through a program called the Skillful Governor’s Coaching Corps. Launched only a year ago, the Coaching Corps has since trained two classes of workforce employees on the use of 3 different data platforms. These Coaches are not only effective at the level of the individual coach, but serve as brand ambassadors for Skillful content throughout the workforce system.

Thirdly, Skillful is working with the business community to transition from “credential based” to “skills based” hiring. This paradigm (more wonkily called “competency-based hiring”) encourages employers to identify the skills relevant for each open position, and then try and identify people with these skills, rather than doing the same process but with a specific credential (e.g. Bachelors in Electrical Engineering). The transition to skills-based hiring has already gained the support of the Colorado Technology Association and its 375+ member companies.

Finally, in February Skillful launched the Skillful State Network, a coalition of 20 State Governors intended to share ideas and best practices from Colorado. As a founding member of the Skillful State Network, Indiana’s Governor Holcomb obviously also intended to be the first one to win the race to have Skillful come to his state.

Skillful Indiana

Based on their startup mentality, Skillful’s move to a new state indicates that their programs might be relevant and scalable to other parts of the country, besides Colorado. Looking at the likely offering in store for Indiana, it seems that the entire Colorado playbook is being copied over, including:

  • Training for new data-driven career coaches
  • Employer groups that support skills-based hiring
  • Skills-based job postings and analytics provided to Indiana residents

The move to Indiana will provide a test case for determining whether the success to date is merely a function of whatever quirks there are about the Colorado regulatory environment, or the Skillful programs themselves. After 2 years incubating in Colorado, the Indiana rollout will also show us how quickly innovation can be scaled up in the workforce world.

Given its successes in Colorado and the promise of things to come in Indiana, I hope the Markle Foundation continues its focus on the World of Work for another 5 years, at least. A lot has been accomplished in the last 5 years, but there’s still 48 states left to go…