I don’t know about you, but I find talent markets fascinating. They have several characteristics that make them quite distinctive from regular old goods and services markets:

  • Talent is extremely heterogeneous; it’s not as if there’s another Honda Accord where that one came from.
  • Talent is what economists call both “excludable” and “rivalrous,” meaning that if I hire you Suzie can’t hire you at the same time. (Knowledge is the classic non-rivalrous and non-excludable good; everyone can know the same thing at the same time without its impairing anyone else’s knowledge of that same thing, and without shutting off anyone else’s access to it.)
  • Talent is notoriously difficult to judge in advance, without actually experiencing it, that is to say, without actually hiring the individual and putting them to work in your organization. Some other markets approach this condition of “ignorance until purchased,” such as attending performing arts events or taking a vacation to a previously unknown locale, but the stakes tend to be much higher for all parties concerned in talent markets.
  • Once talent is hired, it’s stickier than most other purchases. You can walk out of the movie theater or reconfigure your travel plans, but once you hire someone, short of felonious or otherwise appalling behavior, you’re stuck with them for a decent interval.

All this leads to a number of devices and stratagems that attempt to mitigate uncertainty and delay serious resource commitments until some first-hand evaluation can be performed. For example:

  • Performance bonuses paid in arrears, that is, after the activity you wish to reward has (or hasn’t) happened;
  • Likewise, commission payment structures;
  • and deferred compensation in general.

Given all that’s at stake in the talent market, firms find it worthwhile to invest considerable imagination and resources in trying to assess new hires before they’re taken on. In the world of professional services—not to mention industries where it’s even more widespread—tools such as aptitude tests, psychometric profiling, compatibility assessments, and more, are universal.

What types of tests? It depends on the organization, of course, and what they’re looking for, but firms such as DF Shaw (an exotic quant trading firm where Jeff Bezos got his start before upping and outing for Seattle), Google, McKinsey, and Sanford Bernstein (an elite investment research boutique) use these tests religiously. Candidates might be asked questions that appear oddball but which are designed to expose how they think. “How many pubs in Great Britain?” “How many cans of Coke sold in the US annually?” (They’re not looking for the most accurate answer, they’re looking for the rigor and imagination of your analytic process.)

An hour or two, even a day, of objective testing seems a small gate to require one to go through for one of these intensely desirable jobs.

But before talking about BigLaw, let’s go to a talent market where even more money is at stake: The NFL.

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