Sunday, August 01, 2010

Is the Market for Technical Workers a Market for Lemons?

I saw this article about Amazon Mechanical Turk this morning, and it struck me that the market for technical talent, and especially in software engineering and IT talent, is a market for lemons. For a little more critical (and hopeful!) look at the idea, take a look at this post at the Mises Institute.

What's a Lemon Market?

The basic idea behind a market for lemons is that the seller has significantly more information about the quality of a product than the buyer (e.g. an information asymmetry). The consequence of this is that buyers are unwilling to pay for more than the perceived average value of the goods on the market, because the buyer does not know whether he is going to get a cherry (a high quality good) or a lemon (a low quality good). This then creates disincentives to sell cherries, because buyers will not pay their market value, and incentives to sell lemons, because they can be sold for more than they are worth. This creates a sort of vicious cycle where high quality goods are withdrawn for the market, thus lowering the average quality of the available goods and consequently the prices buyers are willing to pay. The ultimate result is a race to the bottom in terms of prices, with high quality goods vanishing as collateral damage.

There are five criterion for a lemon market (paraphrased and reordered from Wikipedia):

  1. Asymmetry of information such that buyers cannot accurately assess the quality of goods and sellers can.
  2. There is an incentive for sellers to pass off low quality goods has high quality goods.
  3. There is either a wide continuum in the quality of goods being sold, or the average quality is sufficiently low such that buyers are pessimistic about the quality of goods available.
  4. Sellers have no credible means of disclosing the quality of the goods they offer.
  5. There is a deficiency of available public quality assurance.

The Lemon Market for Technical Talent

The market for technical talent is similar. The information available about most job candidates for technical positions is superficial at best, and completely inaccurate at worst. Furthermore, even when information is available, the buyers often do not have the knowledge required to evaluate it. This even extends existing, long term employees and contractors. Finally, the quality of an employee is often highly contextual - environmental and cultural factors can significantly boost or dampen a person, and those same factors may have the opposite effect on another. So let's rundown the different factors:

  1. Information Asymmetry: Resumes are short, shallow, and often deceptive. Technical skills are very difficult to assess during an interview, and cultural fit can be almost impossible to assess.
  2. Incentives for sellers to deceive buyers: Resumes are deceptive for a reason. It's often stated that you need to pad your resume, because the person looking at it is automatically going to assume it is padded. Furthermore, for almost two decades now technology has been a source of high paying jobs that can be obtained with marginal effort (just turn on the radio and listen for advertisements for schools offering technology training).
  3. Continuum in the quality of goods: This exists in all professions.
  4. Sellers have no credible means of disclosing quality: This is largely but not entirely true. Most paid work that technology professionals do cannot be disclosed in detail, and even when it is there is reason for sellers to doubt the credibility. Employment agreements may also place restrictions of the disclosure of closely related work, even if it is done on one's on time with one's own resources.
  5. Deficiency of public quality assurance: Employment laws and potentials for litigation (at least here in the U.S.) make the disclosure of employee or even outsourcer performance very risky. Individual workers cannot effectively provide guarantees, and those provided by outsourcers are generally meaningless.

All this really amounts to is: Sellers have no good way of providing information regarding their high quality products, and buyers have no good way of obtaining reliable information about a seller's products. The problem centers entirely around making information available and ensuring its accuracy.

What Technology Professionals can do

Technology Professionals need to build up public reputations. We need to make samples of our work, or at least proxies of samples, publicly available. We need to build more professional communities with broader participation and more local, face-to-face engagement.

I think broader participation is the key. If you look at other professions (yes, I know, I'm lumping all "technology professionals" together and I frequently rant against such a lumping), members are much more active in various groups and associations. In many it's expected and even explicitly required by employers. Sure, there are tons of groups on the internet. There are numerous, and often times enormous technology conferences. There are countless technology blogs and community websites. But I think the conferences are generally too big to be meaningful because most attendees essentially end up being passive receptacles for sales pitches (that's the purpose of these conferences) and maybe they do a little networking and learning on the side. I think even the most active community sites really represent very small slices of the professionals they are intended to serve. Most professionals are passive participants in them at best, just like with conferences.

But there are millions of engineers, software developers, and IT professionals out there. Millions! How many of them do you find actively participating in professional communities of any kind? Not many when you really think about it. This is a problem because as long as the vast majority technology professionals have no public, professional identity, the vast majority of employers aren't going to see professional reputation as a useful search criterion or even measure when considering candidates.

What Employers can do

Employers can do one of two things:

  1. Expect applicants for new positions to provide meaningful evidence of their skills and take the time to evaluate such evidence
  2. Just outsource everything to the cheapest company possible. Information on quality is largely unavailable and unreliable, but information on price is readily available and relatively accurate.

You can see which one of those strategies is dominating the marketplace. One requires effort and involves going against the tide. The other is easy (at least to start, it's not easy to make work), and involves running along with the herd.

Except in the limited number of cases were employers, and the hiring managers who work for them, genuinely believe they can achieve a competitive advantage by actively seeking out candidates with demonstrated qualifications (as opposed to a padded resume and fast talk during an interview), I don't think employers are going to seriously consider reputation and objective evidence of skills until such information is easily obtainable and fairly reliable.

Is there any hope?


We live and work in an information economy where new forms of information become available everyday. There is no reason to believe just because today employers mostly hire on faith and expect luck to carry them through, the in the future there won't be much more information available. I'm sure there are several companies working on aggregating such information right now. The market is huge. While companies will rarely put much effort into obtaining information and aggregating it into a useful form, they will often pay large quantities of money for it. The key is to make sure the information is there for them to use.

Also, if your resume makes it through all the wickets to a real hiring manager, if you provide an easy way for him to find more good information about you, he'll probably use it. Interviewing people is a lot of work. Deciding among candidates can be very hard. Extra information will almost certainly be used. It just has to be easy to obtain. People are lazy.

But what about old fashioned networking?

I think the numbers involved are too large and relying on old-fashioned networks tends to yield too poor of results. Recommendations and referrals are certainly useful and lead to many, many hires. But they tend to be made more based on personal relationships than based on real qualifications and therefore need to be checked. Schmoozing isn't a real technical skill. That being said, it could quite likely get you a job. It's just that in general I don't want to work with such people in a technical capacity, so I'm not going to recommend people go do it in order to obtain technical jobs. I'm selfish that way.

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mccv said...

It's an interesting way to view the technical job market. Two additions

1) As far as what professionals can do - open source. It's a great demonstration of talent on real engineering problems. Active participation in open source projects is a huge bonus during the interview process at my company.

2) As far as what companies can do - referral hiring. This addresses almost all the criteria of the lemon market. It's also one of the reasons that early startup employees are often hired on the basis of the network they bring with them.

KowZ said...

I see this all too often, as many people I know with creditations and many people referring them on social networks with LinkedIn are often the people I know from personal experiences as not being as proficient as they should be at the technology they work on.

I also have seen the downside of this in Interviews where certain things like Certifications can come to haunt as the person doing the hiring thinks that a Technical Certification is a sign of credibility, when most often these Certifications prove that the person was only able to regurgitate a series of answers oft-discussed online.

Even after showing what many believe to be an impressive collection of certificates from Competitions showing relative skill based on other competitors, I have been denied interviews based on the fact I am missing a certain certification.

Erik Engbrecht said...

Open source is great, but I think at this stage many HR departments don't know what to do with it. Hiring managers, of course, will generally understand - either that or you wouldn't want to work for them. It also doesn't work as well for non-developers.

I don't think referral hiring scales. It will work for startups...places where people know other people who are good, and are subject to a personal risk if they refer someone who is not.

But most tech workers are employed by companies that are much, much larger. Just one more "average Joe," is, well, just one more. It changes the nature of referrals. Furthermore there's a natural drift towards nepotism, cronyism, and such.

There needs to be a reliable way to filter the truly good referrals (of which there are many) from the "just passing a name one" from the "if I help this guy get a job, then so-and-so will owe me a favor."

Erik Engbrecht said...

Certifications are interesting beasts. I think the appropriateness depends on the position. I don't have any certifications, and have never even half-seriously pursued one, so I'm certainly not an expert on the subject. But my impression of certifications is that they tend to be focused on testing knowledge of specific technologies and or processes without really requiring any higher-order understanding (see my previous blog on higher-order abstraction). Many people with certifications (or several related certifications) seem to have a kind of blind faith in what they've learned. Blind faith and technology don't mix.

But that's not to say certifications are bad. Many products these days immensely complex, and no matter how smart you are it doesn't make up for the fact that you have no structured knowledge of a specific product. So I understand why for some roles certifications can be important. Especially considering HR needs easy filters. Certifications, degrees, GPAs, years of experience, etc are all very easy filters, even if they aren't particularly accurate.

Certifications are for technicians, or for people who spend much of their time in a technician like role. I don't think they do any good for more creative endeavors or general problem solving. Anything in the least bit knew can't be covered in a certification course or exam. Neither can much in depth thinking. But like I said, there are times when all the in-depth thinking in the world doesn't do any good if your mind doesn't have the data.

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