Shearing the Sheepskin Effect - Ed3 Credentials as Signals and Filters

Shearing the Sheepskin Effect - Ed3 Credentials as Signals and Filters

The value of education should be the learning, not the diploma. The Sheepskin Effect shows the piece of paper - or "sheepskin" - creates value for employers. Web3 credentials can refocus value on learning.

It pays to finish an education.

Students who finish college in the United States earn $1.2 million more during their professional careers than those who just finish high school. The key term: finish.

College graduates earn an average of about $70,000 per year compared to $47,500 for those who finish some college but don’t graduate.

This is what’s known as the Sheepskin Effect - the fact that finishing 7/8ths of a degree doesn’t equate to earning 7/8ths of a graduate’s salary.

Ending the Sheepskin Effect is one of the quickest ways for web3 to improve the education system.

The Sheepskin Effect

Sixty percent of the economic benefit of an education comes from the actual degree rather than the learning or skills the student achieves.

Employers are paying for finishing rather than learning.

Hence the name Sheepskin Effect.

Employers pay for the diploma - the “sheepskin” it is printed on - rather than the human capital being built over time, as Zvi notes.

Two major reasons for the Sheepskin Effect are signaling and filtering.

The diploma is a signal, showing employers that this person is, presumably, responsible and can finish tasks. It’s an applied test of conscientiousness - if you can finish college you can finish the job I ask you to do, as Marc Andreessen summarizes here:

(73s clip) The Myths and Question of Education
The Sheepskin Effect - Scott D. Meyer

The diploma is also a filter to help employers find employees. By having a minimum requirement, employers can filter out people who don't qualify and more quickly make hiring decisions This may be the reason 65% of jobs require a college degree, despite the fact that many don’t actually need that degree.

The Atomized Diploma

Web3 unlocks new models of credentialing that atomizes the diploma.

Instead of credentialing a learning experience at the very end with a degree or certificate, learning is documented along the way and owned by the student. They can choose how, when, and to whom to share their experiences.

These credentials enable students to show their work. Instead of sharing what grade a student received in a class, the student showcases their project, paper, experiment, or other work they completed. This evolution is especially exciting because it enables non-traditional experiences - volunteering, work, leadership, etc. - to be verified and earn a place in the credential.

A credential thus becomes a verified amalgamation of an individual’s experiences rather than showing select experiences, often from a single institution. The web3 credential is comprehensive. That’s why it’s often called a comprehensive learning record.

Signals with Web3 Credentials

Web3 credentials provide signal without the need to complete four years of schooling. These credentials could take numerous forms, whether it is verifiable credentials, NFTs, POAPs, Open Badges, or others.

As Simone Ravaioli and I mentioned in a recent article, web3 credentials, “combine strong signaling properties (image) with machine readability (metadata), enabling quick recognition and sharing of trust, transparency, quality, and reputation."

The signal of a web3 credential is more finely tuned because of its ability to embed examples of work. Completing a degree is currently a signal of responsibility and trustworthiness. With web3 credentials, completing a project or experience can convey the same message.

The signal can go deeper by demonstrating creativity, critical thinking, and other 21st century learning skills that are not currently captured in a credential. This is possible because the process and outputs are documented rather than just a grade based on an individual professor’s standards.

Filters with Web3 Credentials

Web3 credentials are improved filters for both employers and employees. They provide new opportunities for discovery, personalization, and skills mapping.

Web3 credentials are stored "on-chain," which basically means the credential is on an open ledger that anyone can view. This ledger is machine readable and programmable. Suddenly, an employer can discover any student with the skills necessary for their job. These students could be given a token or access to apply for a job, even if the student isn't looking for that particular job or doesn't know the employer exists. This is a powerful way to better source and contact talent around the world.

Web3 wallets enable students to have personal experiences as they visit websites or even attend offline events as discussed here. Employers could show the “now hiring” tab for students who have the experiences or skills in their credential (stored in their digital wallet) that would qualify them for a position. Alternatively, students could identify what additional experiences or courses they might need to qualify for a position. The personalization of the hiring process will incentivize students to find and pursue learning paths that take them exactly where they want to go. No more signing up for classes that are not needed just to complete the degree.

Web3 credentials also enables employers to hire based on skills rather than fields of study. Currently an employer might guess - e.g. if you studied social sciences you’ll be a good people person. With web3, the actual skills can match the job. This effort has begun with the Open Skills Network, the Competency-Based Education Network, and others. Web3 credentials can take libraries of skills, add discoverability, and help employers match jobs to experiences.

Shearing the Sheepskin Effect

The current model of credentialing provides a rough signal and a crude way of filtering out potential employees.

Employers miss out on talent or overpay for the positions they need filled. Potential employees spend more time pursuing a credential than building skills. Many of the talented individuals who could perform a specific task are not given the opportunity. Worst of all, almost 40% of people with student debts in the United States don’t even have a degree. Due to the Sheepskin Effect, they paid for learning but missed out on the majority of the financial rewards by not finishing.

We can do better. We should expect better.

Web3 can be the foundation for this change. The specific file formats may vary based on the use case, but there is no doubt that it can improve upon the current system. By increasing access and improving accreditation, more opportunity will be created for learners and more talent will be unlocked for employers.

Most importantly, the Sheepskin Effect can be sheared for good.