Byron Auguste on Rewiring the U.S. Labor Market (Ep. 160)

Why do so many employers rely on shallow signals of applicant quality?

When looking at the U.S. labor market, Byron Auguste sees too many job seekers screened out based on shallow signals like a bachelor’s degree, and too few ‘screened in’ by directly demonstrating the skills needed for the job at hand. To close those opportunity gaps in the American workforce, Byron co-founded and runs Opportunity@Work, which played a key role in Maryland’s decision in early 2022 to drop four-year degree requirements for thousands of state jobs in favor of recruiting from those identified as being Skilled Through Alternate Routes, or STARs.

He joined Tyler to discuss workforce training in the digital economy, re-evaluating college degree requirements in recruitment, why IQ is overrated and conscientiousness is underrated, the major opportunity gap in on-the-job training, what people miss about the German apprenticeship model, the best novel about finding a job, what’s gone wrong with American men, why we need signal pluralism for higher education admission, why he’s wary of AI for predicting labor outcomes, what happened when Maryland rolled back degree requirements for state jobs, the incentive problems in higher education, and more.

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Recorded September 6th, 2022

Read the full transcript

TYLER COWEN: Hello, everyone, and welcome back to Conversations with Tyler. Today I am here — yes, physically here — with Byron Auguste, who is president and co-founder of Opportunity@Work, a civic enterprise which aims to improve the US labor market. Byron served for two years in the White House as deputy assistant to the president for economic policy and deputy director to the National Economic Council. Until 2013, he was senior partner at McKinsey and worked there for many years. He has also been an economist at LMC International, Oxford University, and the African Development Bank.

He is author of a 1995 book called The Economics of International Payments Unions and Clearing Houses. He has a doctorate of philosophy in economics from Oxford University, an undergraduate econ degree from Yale, and has been a Marshall Scholar. Welcome.

BYRON AUGUSTE: Thank you, Tyler. Happy to be here.

COWEN: So much of your current work is about labor markets and training. How much does advancing information technology make training much harder? Are we even keeping pace with technological advances?

AUGUSTE: I don’t think technology makes training harder. It should make it easier. There are so many more ways to deliver information, to engage with information. It’s funny because a lot of times I hear people talk about, “Oh, in a digital economy, things are going to be so much harder.” But I actually think, in many ways, it’s easier. Think about what someone who’s a janitor, even, can become a building manager with digital technology. Working on an iPad is easier than all the physical tools you need. I think it makes training easier.

COWEN: But if someone has to just teach me a new physical task, isn’t that easier than me having to learn a new piece of software? Even when they change my Gmail, I get upset. It’s disorienting.

AUGUSTE: I don’t see why that would be because a new piece of software is designed, typically, for people to use. It might be a little bit complicated, but if it’s Salesforce or whatever kind of software you’re using, it’s designed for humans to use. It could be better for humans to use, but I don’t think there’s a fundamental distinction between learning digital tools and learning physical tools.

And learning digital tools — you’re much more likely to be able to learn them anywhere. With physical tools — let’s say in textiles or design — you need to be in a center where there’s a lot of other artisans. With digital tools, you can be more of anywhere.

COWEN: Jobs where you have to learn a new digital tool — those typically require at least a four-year college degree. If learning that stuff is so easy, why should the jobs require the college degree?

AUGUSTE: I think the word “require” is doing a lot of work there, Tyler. By that definition, 75 percent of admin assistant jobs require a bachelor’s degree even though two-thirds of admin assistants don’t have a bachelor’s degree.

When you have a couple of million people doing a job without a degree, and that job requires them doing a degree, maybe we should reevaluate what “requires” means. I don’t talk about those jobs requiring a degree. I think companies often screen out people. They preemptively pre-screen people who don’t have a degree, but that’s not the same as saying it requires it.

COWEN: Sure, but there’s a probability distribution. Wouldn’t you agree that people with a college degree would be considerably more able to learn new pieces of software than people without, even though a few million of those without certainly have done it?

AUGUSTE: I think what you’re describing there is, you’re describing two distributions. You’re saying that, on average, someone with a bachelor’s degree is more likely to have that skill set or learn it than someone without a bachelor’s degree, but I heard average is over. Somebody said that.

If you look at the overlap of the distributions, if you’ve got millions of people that you’re excluding just because your arbitrary definition of them means that on average, that’s kind of dumb, isn’t it? It’s like prejudice. It’s prejudging somebody based on a statistical distribution, even though they quite likely could have those skills.

COWEN: But labor markets are, in general, based on statistical discrimination, right? So, what’s the metric we should use for deciding which measures of statistical discrimination are dumb and which are smart?

AUGUSTE: Labor markets look like statistical discrimination when you look at them at the market level. But at the level of the point of hiring, the question is, you have to, typically — particularly when you’re hiring on a digital platform where you might have hundreds of people apply for your jobs — you do have to shortlist people. There is some form of screening based on some sort of signal that is required just from a transaction-cost standpoint. But these days, there are so many better ways to do it than a bachelor’s degree.

Twenty-five years ago, when you needed to just have a keyword search, fine. But now you could post the training that you do for your own people once they have the job, and see who could do the first three modules of the training, and give them an interview. There are so many different ways, but the point is you should screen in based on skills, not screen out based on pedigree. That’s the fundamental issue.

COWEN: How will we get or retrain more young men to be willing to train to be nurses or do eldercare?

AUGUSTE: Well, that’s a great question because we need a lot more in nursing, a lot more eldercare. I would say, in eldercare, paying people more would be a good start. That typically pays very poorly, so I think that should not be overlooked because it’s still a market. It’s both ways.

Secondly, having more pathways and ways to engage. Most people move through the job market based on the skills they have, the experiences they have. So, if there’s not a lot of men in the early stages of care work, it actually is harder for them to move in, just like if there’s not a lot of women in the early stages of construction work, it’s harder for them to move in, even though there should be a lot more women in construction and a lot more men in care.

COWEN: The quality of the police in America seems to be quite low in many jurisdictions. How do we fix that? How much of it is just paying them more? How much is training? How much is culture?

AUGUSTE: Well, it’s not an area where I’m an expert, but it does seem like a lot of it has to do with culture, like organizational culture. And while I’m not an expert on police, I have had a lot of experience with the culture of different organizations. One thing that’s so striking is how much organizational cultures tend to replicate themselves, how much you can come in with a very different attitude and aspiration, and you end up norming to the norms of the organization. And I think that probably is applicable in police departments.

COWEN: At the margin, if you’re trying to retrain someone, would you rather they had higher IQ or higher conscientiousness? Which is more scarce?

AUGUSTE: Well, it depends, in part, on what you’re training them for.

COWEN: Sure, but on average. People who are 25 and over —

AUGUSTE: I think IQ is overrated and conscientiousness is underrated for the most part because people can learn new things, but as you know, learning can be uncomfortable. First of all, it requires realizing you don’t really know a thing, paying attention to where, “Oh, I sort of know this,” but looking at the finer points. Yes, I think conscientiousness probably matters more on the whole.

COWEN: If you think about the value of a typical four-year college degree, say, from a large state university in the United States, how much of that value, to you, is learning and how much is signaling or something else? Bryan Caplan thinks it’s about 80 percent signaling. I disagree with him, but that’s a number, right?

AUGUSTE: Well, how much do you think is signaling and how much do you think is learning? Are you saying the alternative is learning at college? Or are you saying something different?

COWEN: It depends a great deal on the choice of major, but I think 60 percent to 80 percent of it is value of learning. There’s definitely some signaling, there’s some networking, there’s some consumption thrown in there. Those would be my numbers.

AUGUSTE: Well, I thought about this a lot because the college wage premium has been pretty stable. People who have college degrees do make more than those without. But I think there’s something else besides learning in college and the signaling, which is, if you look at how these studies work, you’re typically measuring an income gap, let’s say, 10 years later. And we’ve got it at a two-tiered labor market in this country.

You started this question with a typical bachelor’s degree, but there’s no typical bachelor’s degree, as you know, by topic, but also by school. A college degree isn’t one thing. It’s 18,000 different things. That’s the first point.

As we talked about before, there’s a huge overlap in the distribution of actual skill, actual competency, IQ — everything you want — conscientiousness, all the rest of it. Picture someone coming out of, let’s say, a flagship state university versus somebody coming out with most community college degrees or who didn’t finish college, but who has basically the same characteristics.

The first one, the one coming out of college, is likely going to go into entry-level sales, entry-level management, entry-level technology. And from then on, their employers will invest in developing their human capital as part of their employer’s business model and competitive strategy. Whereas the second person who starts with the same skill set, same attributes, will probably be put into entry-level retail, warehouse, factory floor. And for the most part, they will be trained for safety compliance and efficiency and not for career development and so forth.

After 10 years of that, well, then you’re going to have a massive difference in wage outcomes that, in the particular scenario I’m talking about, really don’t have to do with what they learned. They have to do with the initial signaling. We’ve got to recognize the fact that people are placed in jobs and kept from moving into jobs that they have the skills for. We mostly learn on the job. That’s where most of our human capital is developed.

I think we’ve got it backwards when we think about a skills gap being driven by education. The skills gap is a result of the opportunity gap that we’ve imposed — not entirely, but the implications for the college wage premium is that there are three things. There’s signaling, there’s learning in college, but there’s also, what are you allowed to learn on the job as a result?

COWEN: Now, you think conscientiousness is quite important. I agree with that. I also see in the literature from personality psychology, the big five personality traits — they don’t change that much over time. If you’re conscientious when you’re young, you’re probably still pretty conscientious when you’re old.

If we have in America, let’s say, 37 percent of people get four-year college degrees. The ones who don’t, on average, are less conscientious. Why think that 10 years later, given their lower conscientiousness, they can be retrained when they either couldn’t get through college, wouldn’t finish, didn’t even start — whatever the case may be?

AUGUSTE: I think there are two problems with what you just said, Tyler. One is, you slipped in the “on average,” whereas a person is not an average. A person is an individual, which is a very big deal because I don’t know what the average level of conscientiousness is for college graduates versus not. But let’s assume that it might be higher on average. What it means is, there are tens of millions of people who don’t have college degrees who would rank very highly on conscientiousness.

For example, if you start at college, and you’re a first-generation college student, and then your mother who’s providing for your younger siblings gets sick, and you drop out of college to earn money to support your family, are you less conscientious than the more affluent person who’s taking college? I don’t think so. In other words —

COWEN: That’s not why most people don’t finish, right? Isn’t whether or not you finish college the best test of conscientiousness we have?

AUGUSTE: Absolutely not.

COWEN: What’s the best way we have, then?

AUGUSTE: I think if you’re an employer looking to hire someone, the best test of conscientiousness is how they do at the job they’re in.

COWEN: Well, ex post, but ex ante. Tautologically, the people who do well do well. But ex ante, what’s the best measure of conscientiousness?

AUGUSTE: College right now is a signal of many things, but I think the statistics would say it’s a huge signal of affluence and generational wealth, being able to not only be prepared for the test to go into a selective college, and being able to complete it, having the social capital. If the position is that the people who complete college never make mistakes and therefore, they’re the most conscientious, well, I disagree. I think the people who complete college make lots of mistakes, but they tend to be the ones that have more cushion, more fallback, more shots on goal.

There are millions of people who aspire to go to college. We talk about people who are skilled through alternative routes, or STARs, that don’t have bachelor’s degrees. About 40 percent of them actually do have college credits, but they didn’t finish for a lot of reasons.

For example, they had to work, and they had to work a lot. If their work schedule doesn’t correspond to their class schedule, then maybe they can’t get the classes they need. They basically would have to go six, seven years. They run out of money. They might just plain run out of money. There are all sorts of family instability.

In other words, I just don’t agree with the view that says that the reason most people who don’t complete college don’t complete it because of some Animal House behavior. I disagree. It’s mainly because of the economic and social conditions and what they have to do to manage the totality of life.

Finally, I’ll say most people in college right now are not 19-, 20-year-olds. Most people in college are actually working learners. That’s the typical college student today. They already come to this with children, with responsibilities. I just think our picture of what college is should be different than 50 years ago. It hasn’t caught up.

COWEN: You think it’s a market failure that the sheepskin effect is so pronounced in wages? The sheepskin effect meaning, someone who quits just short of finishing earns much less than someone who finishes.

AUGUSTE: I think it’s an enormous market failure, yes.

COWEN: Why don’t people then start companies or, for that matter, nonprofits and hire up all the people who almost finished because they would be way underpriced? I don’t see anyone doing that.

AUGUSTE: There are.

COWEN: I’m not doing that. Are you doing it?

AUGUSTE: No, there are actually lots of people doing it. It’s a small scale because obviously it’s easier, it’s a quicker path to profits to market to employers people who they already think they want, to market based on pedigree and so forth. And of course, employers want skills, and in places where skills are very easy to quantify, you do get businesses like HackerRank, if you will. Or there’s a bunch of businesses in tech, for example, that are really about assessing people’s skills. That’s definitely happening for software developers.

There are also businesses exactly like the ones you’re talking about, that actually train and hire people, and they actually provide outsource services to companies because those companies wouldn’t hire those individuals because they don’t have degrees, but those individuals are great problem-solvers. They’re great, and again, technology is the area where you see it the most, but that is happening actually. That’s an arbitrage opportunity, for sure.

COWEN: You’ve spoken in Singapore. What does Singapore need to do to support more creative talent?

AUGUSTE: I think Singapore’s gotten a lot of things right in education, and I think one thing that they recognize is that there has been a bit of a conformity. I think one of the best things you can do is to widen the aperture in which you think of talent and to recognize that hybrid skills are so valuable. I think a lot of people — not just in Singapore but in this country — will tell their kids, “You should do engineering and math.”

There’s a lot to be said for that, but software development plus art, software development plus music — there’s really incredible value to having, if you will, orthogonal skill sets, hybrid skill sets because then you notice things other people don’t. I think so much of creativity comes at the margin between disciplines. I also think we’d get a lot more creativity if you had more diversity of talent. In the Singapore context, that has one meaning, and in our context, that has a different meaning. But really, two different life experiences combined with the rigors of learning something well.

COWEN: There’s plenty of ethnic diversity there, right?

AUGUSTE: There is.

COWEN: They make a point of mixing people in terms of neighborhoods. A lot of Singaporeans will say to me, “We’ve chosen high conscientiousness and, in doing so, sacrificed creativity.” They may word it slightly differently, but what do you think of that Singaporean fear? Does that mean conscientiousness is then overrated, not underrated?

AUGUSTE: I don’t think you look at Singapore and say if Singapore maxes on conscientiousness — and it went from being an extremely poor country in the 1950s, an extremely vulnerable country, to one of the richest in the world. I don’t think that speaks poorly for conscientiousness. I’m smiling, though, because what you’re alluding to — I spoke at Singapore at their Jubilee, the 50th anniversary, and they invited me out there to speak about economics and technology.

I looked up the Gallup ratings on engagement at work, these international ratings. There’s a set of people who are so unhappy at work that they want to sabotage things, and there’s a set of people who are so engaged at work that they’re excited. There’s a set of people in the middle. Singapore has the highest percentage of people in the middle that are neither lit up nor are they disgruntled. I mentioned that to the crowd, and there was a lot of knowing laughter.

COWEN: What is your very current opinion of the German model for vocational training? I’ve been hearing for at least 20 years we all need to do it, but I look at the quality of other parts of German education. K through 12, we would call, seems to be fraying. Quality of German infrastructure poor, a lot of bad German decision-making — energy policy, other areas. Are they still actually on the frontier of vocational training? Or is that something we should have been recommending 20 years ago?

AUGUSTE: I’ve spent some time in Europe on this question. Look, I think with the German system and a lot of the Northern European — Swiss is similar to this — they are very, very good at pathways of education to employment. In other words, to have multiple pathways. You are in school, like upper secondary, you have pretty clear choices as to pathways. And you don’t have to have the equivalent of what we would think of as a bachelor’s degree, but you can have very rigorous technical education and a pathway into well-paid jobs.

I think that’s a positive and remains a positive. I think it’s really important to recognize, though, when we talk about adopting the German system, people here tend to say, “Oh, German companies do apprenticeships, so US companies should do apprenticeships.” But it’s not just the German companies do apprenticeships. German companies plug into an apprenticeship system, and they play their part in it. Upper secondary education, labor councils, industry councils — these kinds of collective entities do the heavy lifting, and they plug into it.

I don’t think it’s that applicable here, and in particular, I don’t think the Hanseatic League and the hundreds of years of history that went into the development of that system — you can’t just replicate that here. I think the US system would look different.

I think the weakness of the German system — and partly why you’re seeing this more and more, Tyler — is they actually don’t use this system for . . . let’s say you’re in your 30s, and there’s been a change in industrial structure, and you need to retool. They don’t use the apprenticeship system for that.

Just a couple of years before COVID, I was over — the OECD and the EU had a session on the future of adult education as part of their Apprenticeship Week, and adult education — in the sense of those already in the workplace — is not as strong as your apprenticeship system. I think the dynamism of the economy means that just an education-to-employment model is not going to be enough.

I would like to see an American system leapfrog the German system, be much more data-driven, be much more inclusive, not just about education to employment, but about everyone in their pathways through the job. And we can see in the data that such a system is possible.

COWEN: What’s the best US movie or TV show about finding the perfect job?

AUGUSTE: About finding the perfect job.

COWEN: A very good job. Is it Moby-Dick?


AUGUSTE: Do you think that was a very good job?

COWEN: Well, maybe for the time. But my follow-up question, which I’ll toss out now as well, is: Do you view popular culture as your ally or enemy in what you’re trying to do?

AUGUSTE: Well, right now, I would say it’s not mainly the ally. Back to your question about an American novel, I would go for Mark Twain’s Connecticut Yankee in King Arthur’s Court. He became a court wizard based on his practical Yankee understanding of things like the Almanac and the pattern of solar eclipses. That’s a good example of practical knowledge leading to a pretty great job. In those days in King Arthur’s court, the court magician was right up there.

COWEN: And television today?

AUGUSTE: Well, I don’t know how much television really has to say about getting a great job. I think one of the worst and least realistic depictions — and one of the most influential — was this show called Celebrity Apprentice. You may have heard of it —

COWEN: I’ve heard of it.

AUGUSTE: — which was fantasy and not the way it works. I don’t think, on the whole, television has been all that helpful. I think, though, if anything, I would . . . less television and more elite narratives, if you will, I think really over-index on college. It’s not that that’s bad advice, to go to college, because I think our university system is, in many ways, just an incredible asset, and I think it’s a wonderful thing. But the idea that the only path to success is through college, I think, becomes self-reinforcing.

COWEN: It seems to me there’s good causal evidence that if you finish four-year college, you will end up healthier for the rest of your life. Do the alternatives to college give you that same benefit?

AUGUSTE: Well, whenever we talk about the statistics of college, even setting aside causality —

COWEN: But clearly, there is a selection effect, right? But even causality —

AUGUSTE: Yes. Even setting aside those measurement issues, I think it’s very different to say, how does it make sense to act in the system as it exists today, and how should the system be? That’s different because, for an individual person, they can’t change the system.

Yes, absolutely, I think there are a lot of benefits to graduating from college. If you are in a position to graduate from a quality college, you definitely should try to do that. That would be my advice. Even if you want to be a plumber, maybe you should do that first because then society, as it exists, will both allow you to be a plumber and allow you to do other things if you decide you want to do other things later.

That’s different than saying that we should organize a system in which something that cost tens of thousands of dollars and many years of your life is a prerequisite to having a decent job and a decent living. I think that’s a terrible way to organize a society, which is different than saying, given how we’ve organized the society, what should an individual choose?

COWEN: What has gone wrong with American men?

AUGUSTE: How long have you got? It seems like it’s quite —

COWEN: What’s your most basic explanation? Life expectancy between American men — and you can just do white American men if you want — white American men, white Australian men. It’s a huge gap pre-COVID. Social indicators for a significant chunk of American men — you can divide it up in different ways, but they’re way down. What happened? What’s your simplest theory?

AUGUSTE: Well, I don’t know. It is very striking. As far as I know, there are only two places in the world where such a large part of the population is seeing reduced life expectancy. Well, with COVID now —

COWEN: Putting aside COVID, all this is still happening, right?

AUGUSTE: Yes. I’d say pre-COVID, Russia is one place where it’s deaths of despair, drinking, and then in much of the United States. Look, I think the math says that if you were to anchor it in life expectancy, the issue is deaths of despair. It’s suicide. It’s —

COWEN: But why is despair up here? It’s not the worst country in the world.

AUGUSTE: It’s not. I think there’s a lot of evidence that it’s how you thought your life would be relative to what it is. Over time, if this American dream anchor point is a life where your kids live better than you and you live better than your parents, that’s something that, certainly for white Americans, north of 90 percent were experiencing if you were born in, say, 1940. And now it’s a coin flip, right?

If you were born in 1980, you’re age 30. It looks like about half of Americans were living better than their parents and about half were living worse. Presumably, when we see the 2020 data, it’ll have gone underwater.

We’re the first generation in which Americans, and certainly white Americans, are living worse in material terms, in terms of their life possibilities — where more than half are living worse than their parents. That is a profound shock. I think that on top of it, given so much of it is economics and gender expectations being what they are, that probably does hit men harder.

COWEN: So, you think we should try to lower our expectations for significant portions of American society or raise them?

AUGUSTE: Well, we could do better. You could lower your expectations, [laughs] but you could also do better in your outcomes, which would include . . . Look, the kinds of issues we’re talking about are disproportionately concentrated in white men without bachelor’s degrees. If you look at what was possible for white men without bachelor’s degrees if they worked hard, were conscientious, they could make a lot of progress in their lives before.

More and more of those pathways, where if you didn’t have a college degree but you kept your nose clean and you worked hard — again, for white men, that usually worked out, and now it often doesn’t. A big part of it is just insane levels of pedigree bias, where we attribute so much value to having a bachelor’s degree as opposed to actually doing the job. That doesn’t just affect white men; it affects many. But I do think that that shift in reality relative to expectations has been a significant part of it.

COWEN: There are two versions of your hypothesis that I can see. One is that it would be socially better to value the college degree less, for reasons you just stated, amongst others. The other is that even at the margin, even privately, we’re way overvaluing the college degree.

AUGUSTE: Oh, privately we’re —

COWEN: If it’s the latter, you should be extremely optimistic, right?

AUGUSTE: Well, it is both, but it’s definitely the latter. In other words, because you say privately, “We’re overvaluing the college degree” — again, if you unpack that, at the level of a hiring transaction, absolutely in most cases employers overvalue a college degree. But you’ve got to thin-slice it.

I’m not saying that doctors shouldn’t have medical degrees or perhaps even that you need a civil engineering degree to be building a bridge. But we are requiring bachelor’s degrees for jobs in sales, in general management, in IT operations, where you can easily see whether someone has the skills or not.

Millions of employers for millions of jobs — you’re adding these degree requirements. Yes, at the individual level, I think we are overvaluing degrees and we are undervaluing the skills of people who are skilled through alternative routes, or STARs. But at a system level, it’s incredibly destructive math.

If 70 percent of new jobs in the 10 years to COVID were ones that employers said, “Oh, you need a bachelor’s degree,” but only 40 percent of American workers have a bachelor’s degree, well, then obviously, that math doesn’t work. It’s absolutely self-harm at a system level. It is a market problem, but it’s a collective-action problem too.

COWEN: The collective-action-problem version of your hypothesis seems much more plausible to me. As you know, putting aside pandemic times, employers are demanding not only more four-year degrees but master’s degrees or more for a lot of jobs. So the market has decided in a big way to move in the other direction. The level of market failure —

AUGUSTE: Sorry, have you interviewed the market? How’s the market side of that? I think the institutional factors are really, really important to understand. The US labor market is not a spot market for ditch digging. It’s not a market in that sense. It is where years, decades of investment in human capital, if you will, are monetized.

Like healthcare, it’s a market where the ultimate use is not necessarily by the person hiring or training, and even more so, it’s a market where self-concept plays a big role. For example, in the HR field — that was a field, 30 years ago, where if you were a good, conscientious, people-person manager, someone might say, “Hey, you should look into a stint in HR.” The HR department had people who had worked in operations, on the factory floor, in finance — just all over. It was a very diverse group. Now it’s a field that, over the last three years, has become the most credentialized.

Now, that’s the front end of screening. “Hey, we’re hiring for an important job. Well, my job’s important, and I have a bachelor’s degree for it, so, probably this has to have a bachelor’s degree.” There’s a tremendous amount of cut and pasting going on, just without thinking about what the role requires. I think you can’t ignore these hysteresis effects, if you will. There’s a path dependency here that’s taken us far off course. It’s not just about some straight free-market decisions.

COWEN: We have such a diversified economy, so many millions of employers. They’re willing to do a lot of weird things. You see that in the tech sector. And to think this problem, they can’t overcome because they’re just massively failing at the level of millions of individual decisions —

AUGUSTE: Well, just to be clear, I think it can be overcome. I’m working full time to overcome it. To your point, I’m very optimistic about solving the problem for three main reasons. The biggest reason isn’t even one you’re talking about. The biggest reason I’m optimistic about solving it is that you’ve got 70 million STARs — half the workforce — who are busting their tails to learn new things, to actually figure out what it would take to have the skills for the job.

I don’t know if you saw this. There was a Harvard Business Review, the big survey, Harvard Business School survey and Accenture, I think, that actually looked at attitudes about digital transformation. And senior executives said that one of the biggest barriers to digital transformation is that their frontline workers did not want to learn new skills. But they also surveyed frontline workers who, off the charts, wanted to learn new skills for digital transformation and saw as the problem that they weren’t being given any guidance on what skills to learn.

I think you see that that’s absolutely true of college. Think about the information problem facing someone working in a frontline job, say, making $15 an hour, who wants to do better, wants to earn more, wants to be able to support their family more. Half the people will say, “Oh, you need to go to school. You need to go four years, five years, six years, and then see what happens.” The other half of the people are like, “Oh, you should apply for a job.”

If you say, “Go to school,” where do I get the money? By the way, even if I can get scholarships or student loans or whatever, who supports my kids? Who pays the rent? That’s one problem. Then it’ll be years before you know.

But then, if you apply for a job, you’re not going to know that much more either. You might not get the job, but then the question is, why didn’t you get the job? You don’t get feedback from the interview. You don’t know if you’ve been screened out.

We’ve worked with people who said, “You can’t get me a job at this company. I’ve applied four times. They rejected me.” But guess what? They hadn’t rejected them. They had screened them out. They had not evaluated their skills and found them wanting. They had screened them out without considering them. Since we partner with this company, say, “Hey, in our system, you just do it based on skills and attributes. You don’t screen people out.” They actually got the job.

There is a market failure in the actual workflow of hiring that is massive, and I agree with you. We should be very optimistic about being able to overcome that. I can tell you, lots of employers have been moving in that direction for the last 5, 10 years because they see the old direction’s not working for them.

COWEN: If it’s privately profitable to deviate from this practice, why not run a for-profit rather than a nonprofit?

AUGUSTE: Well, there are for-profits that are taking pieces of this, and I think it’s great. I think if I were doing this as a for-profit, I would be skimming. I would be taking the folks who absolutely, overwhelmingly should have the job today — it’s just not even a close call — and creating some arbitrage there.

But I think there’s a much larger opportunity. I think no one entity, no one person, no one organization, not even one sector can solve this problem alone. I really think it’s a multi-sector problem. The question isn’t, how can a nonprofit solve it? Because a nonprofit can’t solve it. The question is, what’s missing?

Fundamentally, I believe — and Opportunity@Work believes — what’s missing is an actual set of valid signals that show you screen-in signals, as opposed to screen-out signals. You cannot interview everybody, but if you’re screening out because, on average, you think people with a bachelor’s degree are better, therefore, you’re screening out millions of people who can do the job — well, that’s a terrible system.

An individual employer — they can’t necessarily change that whole system because the system works through hiring platforms and lots of other things. And the employers that have the biggest ability to change it don’t need to change it as much because they’re winning the poaching wars. It’s the companies that are losing the poaching wars that are actually really sucking wind on talent. They don’t have the power to change that system, but they can change their practices, and we’re working to help them.

COWEN: As you know, more and more top universities are moving away from requiring standardized testing for people applying. Is this good or bad from your point of view?

AUGUSTE: I think it’s really too early to tell because the question is —

COWEN: But you want alternative markers, not just what kind of family you came from, what kind of prep you had. If you’re just smart, why shouldn’t we let you standardize test?

AUGUSTE: I think alternative markers are key. This is actually a pretty complicated issue, and I’ve talked to university administrators and admissions people, and it’s interesting, the variety of different ways they’re trying to work on this.

But I will say this. If you think about something like the SAT, when it first started — I’m talking about in the 1930s essentially — it was an alternative route into a college. It started with the Ivies. It was started with James Conant and Harvard and the Ivies and the Seven Sisters and the rest, and then it gradually moved out.

The problem they were trying to solve back in the ’30s was that up until that point, the way you got into, say, Dartmouth is the headmaster of Choate would write to Dartmouth and say, “Here’s our 15 candidates for Dartmouth.” Dartmouth would mostly take them because Choate knew what Dartmouth wanted. Then you had the high school movement in the US, where between 1909 and 1939, you went from 9 percent of American teenagers going to high school to 79 percent going to high school.

Now, suddenly, you had high school students applying to college. They were at Dubuque Normal School in Iowa. How does Dartmouth know whether this person was . . . The people from Choate didn’t start taking the SATs, but the SAT — even though it was a pretty terrible test at the time, it was better than nothing. It was a way that someone who was out there — not in the normal feeder schools — could distinguish themselves.

I think that is a very valuable role to play. As you know, Tyler, the SAT does, to some extent, still play that role. But also, because now that everybody has had to use it, it also is something that can be gamed more — test prep and all the rest of it.

COWEN: But it tracks IQ pretty closely. And a lot of Asian schools way overemphasize standard testing, I would say, and they’ve risen to very high levels of quality very quickly. It just seems like a good thing to do.

AUGUSTE: I think there’s a much bigger problem. To me, the bigger problem is this. There is a greater demand for higher education, and rightly so, but if you look at the number of quality seats in higher education in this country, they’ve grown very little. In a period where we’ve gone from almost no one had a college degree . . . By the way, high schools were to get the jobs of the future. High schools were not developed as a way to get into college. High schools were developed as a way to get into a good job, jobs of the future at that time.

Now, in 1983, with the nation at risk, we suddenly decided, “Oh, point of high school is for everyone to go to college.” No one had told high schools up until that point. Now that that’s the case, the basic problem is, if you keep the number of college seats constant, and you demand that everybody try to go to college — and in fact, if businesses, to some extent, weaponize college degrees by saying, “Oh, if you don’t have a college degree, you can’t get into a decent job” — well then, suddenly you’ve got a huge demand for college degrees, and you’ve got basically mostly fixed supply.

What happens, as an economist? What happens is, you create this horrible zero-sum bottleneck in the talent-development system and in the signaling system. So yes, you can debate what should be the signals that allow people to go to college. But the fact of the matter is, we should have 50 percent more, maybe twice as many high-quality seats in college. That’s the problem.

Affirmative action and testing and issues like this become life-or-death issues because we put way too much weight on that bottleneck. What we really need is more quality college seats, and we need many more valid alternative routes. That should be not just for people who are 18, 19, 20, but people in their 20s, people in their 30s, people in their 40s, people in their 50s because jobs are changing all the time, and we need all the talents. It is absolutely not the case that people stop learning. That’s what we need.

I think a lot of this is a second-order distraction because what we actually need is more of the good thing, not just different ways of screening people out.

COWEN: If you’re agnostic on standardized testing, what is it you think we should be measuring more as an admissions input?

AUGUSTE: What I’m saying about testing is that —

COWEN: It doesn’t have to be a test. It could be any kind of measurement. There must be something we should measure more. What is that something?

AUGUSTE: I think it’s more of a signal pluralism that I’m arguing for. In other words, there are so many talents, and there are so many different needs and skills. The idea that we should all norm on a single way to evaluate talent at every level is quite —

COWEN: No, we can measure a bunch of things more. You don’t simply want more discretion for admissions officers, right?

AUGUSTE: Yes, but first of all, the college and vocational should not be nearly as separate as they are. We should think about vocational as applied learning, and there should be way more of it in college. I think Northeastern University, for example, has done a very good job of that.

I think college should also be much more seen as skills acquisition along the way. You think of Western Governors University, which is an example of filling a market. It’s a nonprofit, but it’s been growing by I think 10 percent, 15 percent a year since it was founded. And it’s competency-based education, where every level of learning can be validated. In principle, the bachelor’s degree is the ribbon and bow at the end of the process.

COWEN: Genomics doesn’t seem to work yet practically, but should we use it when it does? Wouldn’t it be a good way to identify people who couldn’t go to college but are very talented?

AUGUSTE: I think there are lots of easier ways than genomics, [laughs] a lot more direct ways to recognize people —

COWEN: Again, ex post, you see who’s done well, but ex ante, what’s better when it works?

AUGUSTE: Think about the data we have right now. Opportunity@Work — we’re trying to create a market change. So we are thinking about talent category creation, where people are skilled through alternative routes — 70 million people STARs — and the fact is, you can see what skills people have most easily by what jobs they do today.

One of the things that’s really powerful is that there’s a huge overlap in the skill set required for many low-wage jobs and those for many middle-wage jobs. A second-level call center representative has a lot of the skills required for enterprise sales, for example, but enterprise sales might pay twice as much money.

If you think about formal education or training as more like topping up the skills you learn on the job, you have a much more efficient path to source people by the millions into jobs you want. That’s a much more direct path. There are about 50 gateway jobs that are lower-wage jobs where the skills required for them basically match the skills for middle-wage jobs.

The 70 million STARs — 30 million of them have skills for a job that pays 50 percent more than the jobs they’re in today. And you’ll say, “Well, why doesn’t the market allow them to move into those jobs?” The answer is, it partly does. We have a database of 130 million job transitions, and that’s exactly how STARs — and for that matter, people with bachelor’s degrees — tend to move into higher-wage jobs. They move into higher-wage jobs with highly overlapping skill sets to the jobs they’re in.

We see a much more direct impact than genomics or teaching third graders to code or any number of things you might also think might matter. A much more direct effect is, instead of these movements happening at random, why don’t we put some street lights around them? Why don’t we actually treat these accidental pathways up through the labor market as intentional ones?

I think that can be the basis of an American system, if you will, that’s much more related to data, much more driven by work, as opposed to just waiting. I think that would be a far superior — or rather, not as a replacement for higher education because, again, pluralism matters. It’s creating a wide variety of ways that people can succeed.

COWEN: Let’s say we had an AI system that predicted labor outcomes pretty well. Maybe it wasn’t transparent. We didn’t even understand how it worked. That’s quite possible with algorithms. Should we use that a lot? Or is that a problem or an issue?

AUGUSTE: Well, as you described it, I think that’s a terrible idea, and here’s why. If you have an AI that can predict outcomes, and, as you mentioned, we don’t understand it, the way an AI is almost certainly predicting those outcomes is not by some inherent characteristics; it’s by machine learning. In other words, it’s looking at the actual outcomes and saying, what’s the pattern that generates these outcomes?

Well, if the actual outcomes today are generated by all sorts of bias — and most obviously, for the purposes of this conversation, this degree bias — well, then the AI will say, “Oh, well, you’re not going to probably be able to get that job because all our data says you won’t.”

But why is it? It’s not because of some intrinsic reason. It’s because we have a system that’s biased against you. The same can be true if you look at the levels of occupational segregation in this country by gender, certainly, but by race also. For you to believe that that’s an actually optimal situation, you’d have to have a pretty low opinion of, let’s say, Black people because —

COWEN: Why think an AI program is going to hurt Black people? Isn’t everything, in a sense, an AI program?

AUGUSTE: No, I’m not saying an AI program is going to hurt Black people, and I’m not saying the AI program is going to hurt. I’m saying that the current systems — and let’s keep it on STARs versus people with bachelor’s degrees, people who have the skills do the job but can’t get the job. There are millions of such people. They’re being screened out not by AI; they’re being screened out by a set of human systems — by the way, mostly designed by accident — inadvertently, with respect to their talents, for the most part. That is what’s doing it.

What AI is doing — the machine learning AI is turbocharging the failures of the human system. I’m not blaming the AI, to be very clear. I think AI could be very helpful, extremely helpful. To apply machine learning to human learning, for example — I think that can be very powerful. I could see, in the future, you could have a business model that had an AI patch. You have 85 percent of the skills for the job. The AI can help you do the other 15 percent, can teach you as you go, can validate when you have the skills. It could be metered, and then it goes away, and you have all the skills.

AI can be incredibly helpful, but it’s got to be trying to solve the right problem. This is the biggest thing about AI. What is the problem you’re trying to solve? Secondarily, what are the constraints you’re imposing? Because an AI will then go to town, but if you’re trying to solve the wrong problem with an AI, it’s a disaster. I’m not blaming the AI. That’s the wrong problem statement. A right problem statement is, how do you help people who have a tremendous amount of skills but not all of them? We’re not quite sure. If you set AI to solve that problem, well, I think AI could be very powerful.

COWEN: Isn’t there a tension in what you’re saying? You’re trying to tell all these employers, “If you do what I’m recommending, it will be good for your private profits.” Then you’re turning around and telling them, “Well, any algorithm you use that will predict actual outcomes is bad. That’s what you shouldn’t be doing.”

AUGUSTE: That’s not what I said.

COWEN: Isn’t that a very uphill climb?

AUGUSTE: No, I’m not saying that any outcomes . . . Garbage in, garbage out is what I’m saying. I’m saying, if your process is biased and then you use AI to replicate the process —

COWEN: The word “bias” is itself biased. If you have an AI program that does predict who will do well on the job, employers will want to use it.

AUGUSTE: Do well how?

COWEN: Generate profits for the company.

AUGUSTE: You think that the companies in their own internal systems — that AI could have sufficiently good attribution of who develops profits for the company? Look, if you’re talking about sales, for example, maybe. But most jobs are collaborative jobs, where the work product is a team product. Probably, Google has the most — not probably — definitely has the most sophisticated people analytics team in the world. They’ve concluded a couple of things.

One, they’ve concluded that when you have all the data, the bachelor’s degree has zero additional explanatory power. That’s one thing when you apply most of it. The second thing is, the best teams are not just aggregations of the “best individuals” in the role. The best teams have dynamics of their own that include some that are more team players, some that are more . . . It’s not that applying AI has to be problematic. It’s that applying AI to a problem that’s poorly understood and poorly specified is not going to work.

COWEN: As you know, the state of Maryland now no longer requires a bachelor’s degree for a large number of government jobs. It’s early on in this, but how do you think that’s going so far? What is going well? What is not going well?

AUGUSTE: As you may know, Opportunity@Work partnered with the state of Maryland to do this. We actually showed Governor Hogan and his team the data. There are 1.3 million STARs in Maryland, half of whom have the skills for jobs that pay more, and they cut across all races and all regions. It’s particularly powerful for veterans, for people in rural areas in Maryland, disproportionately African Americans, also Latinos. So, it’s very powerful, and the state of Maryland had a lot of jobs it couldn’t fill.

What it actually did is a combination of removing degree requirements for some jobs where they clearly didn’t belong, and in other cases, it had to do with jobs that there weren’t really formal degree requirements, but there also wasn’t outreach to STARs.

I think a big thing that Maryland and Governor Hogan did — and he and I were there announcing this together, but he really focused on, “We see your talent, we see your skills, we want it. We want your help solving the problems for the state of Maryland.” That’s really important.

I get annoyed when I hear people, “Oh, are we going to give someone a job?” A job is not a gift. Work is solving problems, and STARs are problem-solvers. We have a lot of unsolved problems, and when you have people who can help you solve the problems, and you’re keeping them out, that’s ridiculous.

Maryland also posted hundreds of these jobs on Stellarworx, which is Opportunity@Work’s STARs talent marketplace. Look, it’s getting the pipeline going because they’ve had lots of applications. We offer some additional ways to screen people in. Again, at the end of the day, it’s those who hire in Maryland — there’s a very formal process.

One thing that’s been really gratifying is that many other states have reached out, and many other county governments have reached out, but also lots of employers. Many employers that we worked with already have seen the Maryland examples being very validating for their work.

COWEN: Now, you argued before — and I fully agree — that top schools, indeed non-top schools, should let in many more candidates. Given that they don’t do this — this argument is, at this point, not new — how much should we actually trust these institutions of higher education? Should we respect them? Should we honor them? Should we think they’re well-intentioned but somehow just not understanding the argument? Or should we think they’re actually self-interested and elitist and anti-egalitarian? What’s our proper mental stance here?

AUGUSTE: I think the argument that institutions are self-interested is not as much of an insult as some people give it credit.

COWEN: I’m willing to take the fully cynical view on this.

AUGUSTE: I’m saying, as economists, the idea that if you put a set of incentives in front of an institution, over time, they will respond to those incentives. That’s pretty normal. Let’s review the incentives for higher education. We create this system where businesses decide that the way to decide whether they would even bother to spend the time to figure out whether somebody could get a decent job and lead a different, decent life as a result — because that’s how you lead it in America. You work and you advance.

If they say this thing that was never invented for that, this college degree and, ideally, a selective college degree — that’s what we’re going to base it on. That’s the thing. It sets this incredible magnetic signal that everybody’s got to charge towards that. Then we say, all right, that sets off the competition in higher ed. How do we judge whether you’re doing well in higher ed? I’ll tell you what, how about this? The more people you can exclude, the better you’re doing.

So, we’re saying everybody needs a college degree, and then we’re saying, you get to the top of the rankings in U.S. News & World Report by excluding as many people as you can. That is a terrible incentive structure. Surprise! Colleges are trying to rise up the rankings. They’re trying to be better reviewed, so you get what you ask for.

That’s the thing. What’s mystifying to me, Tyler, is how surprised businesses are when they say, “Oh, colleges, aren’t giving us the skills we want.” It’s like, they’re giving you what you ask for, which is people with bachelor’s degrees, and then we’re surprised when we say, “Oh, the best college is the one that keeps the most out,” and then we’re saying, “Why don’t colleges let more people in?” The problem starts with this combination of an elitist attitude. It says, “Oh, how do you know something’s good?” It’s that not many people can do it.

No, that’s wrong. I think colleges should be judged by how many people they successfully include and how much progress they help them make, not just in terms of their potential earnings — although it’s obviously important — but what they learn. They might learn that they want to do something completely different. I think colleges should be judged by that, and right now we’re judging colleges in almost the worst possible way.

It shouldn’t be surprising that many colleges feel the pressure to try to be elite, to see how many people they can get to apply, how many people they can reject, and not to add seats because then it would be harder to do that. I think we need to change the incentive structure for universities, but that’s a very different thing than saying we should disrespect college education or university education. I think it’s obviously incredibly important and valuable for the country. We need more of it for more people.

COWEN: To change the incentive structure, maybe we do need to start calling them actually low status, according to the correct moral theory, because it’s pretty locked in — top schools, state top schools for decades, maybe centuries, perhaps someday millennia.

AUGUSTE: Yes. Well, just speaking personally, I do not consider a school so great on the basis of its huge rejection rate. I think that’s terrible. The schools I respect the most are the ones that actually do the most to develop the most people. It’s okay if any one school does it a certain way because we have a tremendous amount of diversity in higher education. That’s good because we have diversity in people and diversity in jobs and diversity in regions.

But I think the problem is more when we go to this monoculture, and we say there’s a single metric by which to judge people, by which to judge universities. I think that’s a pretty big mistake.

COWEN: You hire many people. You’ve worked for McKinsey. What’s your favorite interview question?

AUGUSTE: My interview questions tend not to be a single question that’s the same for everybody, rightly or wrongly. I tend to be really interested in what people have done and what they’ve learned. If someone describes a smooth progression without ever making a mistake or ever learning a thing, I’m not that impressed. I’ll tend to drill down when I get a sign that they learned something to really understand what they learned, how they learned it, and at what cost, and how they apply it now.

It tends to be specific to the situation and to the role, of course, because I’d be looking for different things for someone who’s doing, let’s say, sales or business development versus someone who’s doing analytics. Someone who’s doing sales and business development, who maybe can’t sell me on anything in the interview, I’d be more concerned. But someone who’s doing careful research who doesn’t sell me on anything in the interview, I’d be okay with that.

COWEN: How useful do you think are interviews? I mean, interviews done by you, not done by a mediocre HR person.

AUGUSTE: First of all, there’s a lot of wonderful HR people. They’re not all mediocre. [laughs]

COWEN: Sure, but the average interview may not be that useful, right?

AUGUSTE: Yes, right. It might not be, but actually, I’m not sure it’s the HR person who’s got the more mediocre interviews. On the one hand, I think hiring managers tend to know better what they need, but they may not be as thoughtful about the interview. But setting that aside, I think interviews can be really valuable. I wouldn’t hire a senior executive, for example, without an interview.

For me, at that level, what I’m looking for a little bit is anomalies. I would put more weight on their track record, but in the interview, I’d want to understand — we call it production function — how did they get that track record? Is that something that is more at the expense of the others around them? Or is it something that actually has built up the success of the team too? If an interview doesn’t jive with the track record, I want to dig deeper.

I think interviews may be overrated for jobs where there are . . . or a whole series of interviews might be overrated for jobs where there’s a huge number of positions to be filled, and the role is relatively standardized and understood. I think we should have a lot more where people can demonstrate that they’re ready for a job. Even if they don’t get that particular job, they get pulled into another similar job without another whole round of interviews.

COWEN: Very last question. What was it like having Charles Goodhart as your adviser for your PhD?

AUGUSTE: Oh, [laughs] well, Charles Goodhart was actually my referee for my PhD, not my adviser. This was on international payment unions and clearinghouses, so it was central banking. Well, I would say it was good because, number one, I got my doctorate, and then number two, he recommended it to Macmillan and St. Martin’s for publication. That’s why it was published as a book. It is definitely not my idea that the world needed a book on that, but Professor Goodhart thought so.

COWEN: Payment systems have become a big deal since you wrote that book, much bigger than at the time. So, you were ahead of the curve.

AUGUSTE: Absolutely. I have a hedge against the collapse of the global economy. It’ll become all the more useful.

COWEN: Byron Auguste, thank you very much.

AUGUSTE: Thank you, Tyler.