The Insider Guide to Careers
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Diversity is a hot topic for discussion nowadays. In the US, affirmative action for college admissions has been struck down. Meanwhile, there is an enormous demand for reservations in India, with even well-to-do groups clamoring to be included in the reserved categories.
Let us delve deeper. There are many reasons for why diversity is helpful. I will not delve into that for this essay. Let us look at the arguments against diversity. Two opinions are generally advanced to say why diversity actions don’t make sense.
College Selectivity and the jobs marketplace:
The elephant in the room is not college selectivity but workplace jobs. I have been in HR, recruited and managed thousands of employees and managers. I have even earned multiple degrees myself. The truth is that for most workplace jobs, one rarely uses any skill learned in university. Even working for a ling time in the biggest tech companies, I am still waiting to see an analysis go beyond a rudimentary Excel correlation (excepting probably the R&D organization). What matters in companies is the ability to be humble, be willing to learn, work hard, give regular updates to the manager, get work done on time, and avoid errors in the documents created. Other skills like managing office politics, having good communication skills, and being a logical thinker also help. None of these qualities are something one gains exclusively in college. These equalities are basic common sense and can be gained by practical exposure. There is no reason why a person who didn’t go to college or went to a lower-ranked college should not get a chance at a top job. Engineering jobs are different; they need hardcore technical skills, which most technical schools provide. Not surprisingly, tech companies are open to talent from any university as long as the student has the right skills. In a company like Google, up to 15% of engineers have no engineering degree.
Another root cause of the problem is that companies are outsourcing their selection process to universities. They demand that IITs or Ivy League universities do the shortlisting for them. Companies in Investment Banking, Private Equity, and Consulting firms routinely indulge in status signaling by recruiting only from a small group of top colleges. The practical reason is that there are too many applicants and very few jobs. Hence, these companies can be as selective as they want without anyone questioning them. These companies do resume-based shortlisting by looking at grades, university brands, and extracurriculars. Much research (including at Google) shows that all these parameters do not correlate with actual job performance. Yet, these nonsensical practices persist.
No alternative has emerged to grades and university reputation. We at Careerbolt are looking at a solution that involves continuously measuring job-related skills throughout education or work. These job-related skill evaluations, whether skill assessments or manager evaluations, can, over time, create a rich candidate profile. This information is invaluable to recruiters as it helps them identify suitable candidates. Sadly, nobody else is working on any such solution. One of the reasons why corporate recruiting or college admissions has seen no revolution or change for a long time is that very few people have ever worked in HR or understand how HR operates. For example, almost nobody after an MBA degree want to work in HR, as it is relatively underpaid compared to Consulting, Finance and other specializations. Now, let us move on to some economics.
Why companies embrace affirmative action and reservations:
Companies are not social justice warriors; if they do so, it is time to be skeptical. In that case, the company should seriously consider becoming a charity. Companies are out in the market to make money and realize their capitalist goals. When they embrace gender and racial diversity, it is with entirely different goals in mind that few are aware of. If companies have a conscience, it is because there is also an economic rationale. The hidden motive is to drive compensation costs down.
Companies hate to be in a market where the employees have better bargaining power than the company. That is, if there are few skilled employees and many companies, the employees have the upper hand. They can demand sky-high wages, and the companies don’t like it. In the same way, companies do not like union formation, as collective bargaining can drive up compensation costs.
When it came to companies embracing gender diversity, the famous economist Milton Friedman talked about how pay disparity can never be sustainable. A company could easily replace all its employees with lower-paid female employees and dramatically cut down compensation costs. This action would drive its competitors out of business. The fact that no company experiments with an all-female workforce means that there is more at play beyond compensation.
Let us look at an example. Assume that there is a company where 100 men are paid a compensation of X dollars, and there are another 100 women who are not in the workforce. If the company can bring another 100 women into the workforce, they now have 200 people vying for the same 100 jobs. This means they can drop the compensation to way below X dollars and still find candidates. By introducing women, companies break the bargaining power of men. In addition, the companies also get deserved brownie points for social justice. Data from the St Louis Federal Reserve backs this claim. While it is often reported that average compensation has ben flat for the last four decades, what no media reports is that compensation had impacted genders differently. Compensation for men has dropped in the last 40 years by around 10%, while compensation for women has risen by around 25-30%.
In the same way, if the workforce is predominantly white men and women, companies can break their stranglehold by introducing minorities into the company. Of course, there is also a reason that as the US population gets more diverse, more diverse employees are needed in the workplace to better identify the right product market fit. The prediction is that by 2045, white people will become a minority in the US. Hence, companies need to react to this scenario.
Be wise, and think for yourself. The demand and supply curves can be an instrumental ally when evaluating workplace scenarios.
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