All labour markets involve a degree of employer uncertainty about candidates’ skills and suitability, which results in labour market inefficiency where employers end up investing in costly screening procedures or miss out on suitable candidates. Jobseekers may fail to obtain work despite possessing the necessary skills. A new study, “Do Microcredentials Help New Workers Enter the Market? Evidence from an Online Labor Platform“, by Dr Otto Kässi and Professor Vili Lehdonvirta at the Oxford Internet Institute, part of the University of Oxford, investigates a potential new solution to this problem. Published in the Journal of Human Resources, the study examines how voluntary “microcredentials” influence job-seekers’ employment prospects and pay.
Microcredentials are digital “badges” awarded on the basis of an online skill test and displayed on a candidate’s profile. Companies such as Google, Amazon, and Microsoft offer microcredentialing schemes on skills ranging from programming languages to office software packages. Drawing on transaction-level data from an online freelancing marketplace, Kässi and Lehdonvirta show that workers’ earnings increase when they obtain microcredentials awarded by the platform. The increase results from reduced employer uncertainty rather than increased worker productivity; that is, workers are just as skilled right before and after passing a test, but passing the test makes employers more confident about their skills, and thus more eager to employ them.
However, Kässi and Lehdonvirta show that the bump in earnings results from microcredentialed workers winning higher-value jobs, rather than from winning more jobs. This means that unemployed youth who are struggling to land their first job are unlikely to benefit from the credentials. Instead, microcredentials appear most beneficial to somewhat experienced workers and workers whose earnings are depressed by statistical discrimination, such as immigrants and minorities. The credentials help such workers to attain jobs that better match their skills. Microcredentialling could also improve labour market matches when public qualification schemes are too slow to keep up with rapidly changing skill requirements.
We spoke to Vili Lehdonvirta about certification and skills signalling in the labour market, and how it relates to greater overall efficiency, and higher earning power for individuals.
David Sutcliffe: I can see the value of showing evidence of skills and training when you advertise yourself on the job market, but you could also spend a lifetime attaining an endless number and variety of “micro-certificates”. In a nutshell: do they help?
Vili: Microcredentials do help. In our study, we found that gaining an additional microcredential resulted in an average earnings gain of 8.9% over the following two weeks. But the benefits from amassing multiple credentials diminished rapidly. After about eleven credentials, additional ones no longer made any difference at all.
David: I suppose this depends on context. An employer who is after solid experience isn’t going to look at someone who’s apparently trained, but who lacks practical experience—indeed, you found microcredentials to be less useful for highly experienced workers. So, what sorts of jobs (or people) are microcredentials most suited to?
Vili: We found that the workers who benefited most from microcredentials were those who were neither completely inexperienced nor highly experienced; that is, workers who were already winning jobs but whose track record was still fairly short. Microcredentials helped these workers win higher-value jobs by convincing employers that, despite their short resume, they had the necessary skills. Microcredentials also appeared to help people who belonged to groups that employers tended to assume were less skilled, which typically includes immigrants and minorities. But microcredentials made next to no difference for workers who already had impressive track records and lots of references from previous employers.
Microcredentials also didn’t help workers who were completely new to the market. We think that this is because credentials speak to hard skills, but say nothing about a candidate’s soft skills and general trustworthiness, for which there is no substitute to references from previous employers. Microcredentials thus don’t do much to solve the new jobseekers’ dilemma: you need experience to get a job, but you need a job to get experience.
David: Presumably we’re talking about a continuous distribution of possible skills certificates, official qualifications, and other “employability signals”. Or is there a useful, functional distinction to be made between “qualifications” and “microcredentials”?
Vili: Microcredentials are similar to formal qualifications, like university degrees and vocational qualifications, in that they certify candidates’ skills and abilities and thus help to convince employers. But where formal qualifications certify large skill sets, microcredentials certify much narrower skill sets or even specific skills. And where formal qualifications guarantee that the skills were acquired through multi-year education and training, microcredentials are typically agnostic as to how the skills were acquired; candidates could acquire them though online courses or just on-the-job learning, for instance.
David: And how does this relate to higher-level policy on skills and employment? Governments are presumably keen for us all to be maintaining a permanent-beta state of “reskilling / upskilling”—to keep labour markets active and efficient (and the workforce competitive)?
Vili: Policy makers and employers have been promoting lifelong learning for decades. And the Internet has enabled new forms of informal learning. In the CrowdLearn project, we found that independent knowledge workers frequently used how-to videos, question and answer sites, and specialized online communities, to pick up new skills that they needed at work. But a question that has come up in policy circles is how such informal learning could be certified and “validated”. The fear is that unless the new skills are certified, they will not be recognized by other employers, making it harder for people to change jobs. Our results suggest that microcredentials help address this problem for less experienced workers. And for more experienced workers we found that the fears may be unfounded: the workers’ track records speak for themselves, so they do not need certificates to find appropriate work.
A question that often arises is whether university education and formal qualifications are now obsolete since we have online learning and microcredentials. Indeed, in the CrowdLearn project we found that independent knowledge workers did not consider university degrees very useful for winning jobs. The skills they applied were often picked up through on-the-job learning. Yet we also found that these same workers were much more likely to have studied at a university than the general population; many had completed advanced graduate programmes. The reason for this apparent contradiction is that while university degrees may no longer be very useful in an online labour market, university education is perhaps even more valuable than before, because it develops precisely the metacognitive skills required in independent, self-directed learning, such as self-regulation, analytical thinking, and learning skills.
David: One thing you mention is that microcredentials might be useful in newer, niche areas of employment, where formal qualifications have yet to be established. What sorts of areas?
Vili: If you look at where microcredentials are most used, they are typically in new and rapidly developing areas, such as information technology. For instance, cloud computing is a big area. Companies want to move services to the cloud, but they need to hire people with suitable skills to lead that. Since it’s a new area, there are next to no university graduates in cloud computing. To address this, Google, Amazon, and Microsoft each offer a suite of microcredentials that certify competence in various aspects of their cloud computing technologies.
David: This work is part of your broader research programme on labour markets and digital platforms, supported by the European Research Council. Another output from this programme is the Online Labour Index, a set of real-time economic indicators on the online labour market. Where next for this programme of work?
Vili: With my colleague Fabian Stephany, we are investigating how “AI” and other new technologies are changing the skill demands in different jobs, and how we could use data to provide bespoke reskilling advice tailored to the situations of specific workers. At the same time, I am intensely interested in the broader societal and political implications of technology companies taking over functions previously associated with public authorities, such as certifying skills and regulating labour markets. My upcoming book Cloud Empires: How digital platforms are overtaking the state and how we can regain control (MIT Press, 2022) is a detailed investigation on this.
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David Sutcliffe was talking to Vili Lehdonvirta, Professor of Economic Sociology and Digital Social Research at the OII, whose research examines how digital technologies are reshaping the organization of economic activities in society. Vili tweets at https://twitter.com/ViliLe.
Read the full article: Otto Kässi and Vili Lehdonvirta (2021) Do Microcredentials Help New Workers Enter the Market? Evidence from an Online Labor Platform. Journal of Human Resources.
This research was supported by a grant from the European Research Council (grant number 639652 iLabour), and the research project “BRIE-Etla 2019–2022 – Shaping the Future in the Era of Intelligent Tools: AI and Beyond” funded by Business Finland. Otto Kässi also gratefully acknowledges financial support from the OECD Future of Work Fellowship.
