HN user
One important factor Paul left out was the ability to terminate bad employees. If an organization can't get rid of poor performers at reasonable cost, due to restrictive labor contracts or tenure for example, the organization will have to put much more effort into screening candidates.
There's another explanation for the 40% rise in applications received by YCombinator. Much of YCombinator's seed-stage competition is moving up-market. All the VCs we've talked to on the east coast now target post-revenue companies, not seed-stage start-ups. If there are fewer VCs looking at early investments, you'd expect YCombinator's applications to go up.