We are currently seeing some of the lowest unemployment rates since 1969, an indicator that would lead people to believe there is not a shortage of talent — a notion that is misleading. Although the unemployment numbers are so low, we are still seeing a low labor force participation rate — a number that measures not only how many people are working but how many people are looking for work. Although this ratio may be closer to the new normal as around 3 million people went into early retirement during the pandemic, the hiring market is still experiencing a huge gap in being able to fill jobs. According to the US Chamber of Commerce, if every unemployed person found a job, there would still be 4 million open jobs.
One of the biggest drivers in filling the gap of open jobs is the ability to find interested job seekers with the skills required for the job openings. A survey conducted by Wiley in 2022 revealed that among the 600 HR professionals that were surveyed, 69% said they were unable to fill jobs because of a skills gap, up around 14% from 2021.
Aside from already skilled workers leaving the workforce for early retirement, and workers “shuffling” industries during the Great Reshuffle, what is really happening in the market? Many employers are not setting themselves up for success because they are refusing to make job opportunities available to willing workers.
According to Opportunity@Work, 7.4 million American workers are unable to obtain good quality jobs because of degree requirements on job postings; these are job seekers who are qualified through alternative routes. Employers are intentionally eliminating millions of potential workers by having these degree requirements. With only 40% of the U.S. workforce having a bachelor’s degree, a number that has also seen a 9% decline in undergraduate enrollment since 2009, the size of the talent pool employers are looking in is continuing to shrink. Additionally, younger generations are passing on attending college due to its' average cost more than doubling in the 21st century. Based on these facts, employers will not be able to fill their job opportunities by continuing with their current hiring practices.
Skills-based hiring — a term that has become very prevalent recently, when put into action has been proven to have a profound impact on the company’s ability to fill open opportunities with qualified talent. From large companies like IBM to states such as Maryland, organizations who have looked at their job descriptions to decide if an education requirement was truly needed to be successful in the role have seen positive outcomes. Maryland was able to change 300 state job descriptions from a degree required to “degree or equivalent relevant experience” and saw a 41% increase in new hires without degrees.
Although this problem seems new, the situation is not. Historically we have seen two types of job requirement resets. One known as a structural reset which was seen most recently in 2017 when demand for talent outreached the supply, and employers needed to de-emphasize degrees. After this reset, 46% of middle-skills positions and 31% of high-skills positions were able to reduce degree requirements, thus increasing the size of the talent pool eligible for these roles. Currently, we are seeing a cyclical reset, a quick or short-term shift that started during the pandemic when employers were desperate to find skilled workers. The desperation for talent lead to 27% of occupations reducing degree requirements between 2019 and 2020 in order to open up to a larger supply of candidates.
With large companies and governments seeing successes in implementing skills-based hiring, it’s an easy question to then ask, why aren’t more organizations taking a skills-based hiring approach? First, there is a belief that requiring a bachelor’s degree will attract candidates who learned basic skills while completing their degree like teamwork, accountability, commitment, problem-solving, active listening, motivation, etc., even though completing an undergraduate degree does not explicitly or exclusively help people learn these skills.
There are other life opportunities outside of education that can help instill these skills, for example being in the workforce directly out of high school can provide individuals with these same skills; the paradox is properly interviewing for these skills. Skills assessments at the point of application are also highly regulated by the Equal Employment Opportunity Commission to ensure fair hiring practices. Regulated processes often deter employers from going through the effort to implement skills assessments but, as General Motors Chief Diversity and Inclusion Officer put it best when he said, “degrees aren’t necessarily the be-all, end-all indicator of someone’s potential”.
Why should companies move towards skills-based hiring?
Removing educational barriers could broaden your talent pool by 2.3 times your original application numbers. Expanding your search to candidates who may have been historically overlooked will allow you to find the right talent faster. A larger supply will also limit the likelihood of competing for the same talent as your competitors, who may be hiring for similar positions.
Research completed by McKinsey indicates that looking at skills rather than education is five times more predictive of job performance and two times more predictive than hiring for work experience alone. Simply put, better hires are more likely to stay at a company long-term.
According to a LinkedIn report from 2019, 94% of employees say they would stick with an organization longer if the company invested in their training and development.
In Chicago alone, on average only 20% of the Black and Hispanic workforce have a bachelor’s degree or higher (Graph A). Opposingly, over the last 10 years, 79% of Chicago’s job postings have asked for a bachelor’s degree or higher (Graph B). It is nearly impossible to diversify a company’s workforce when a majority of the people of color in the candidate pool are being excluded from applying. Lastly, it has been proven that more diverse companies have greater cash flows in the long run. An inclusive skills-based hiring strategy will positively impact the company, its employees, and the socioeconomics of the community.
Graph A
Source: ACS 5-Year Estimates
Graph B
Source: Burning Glass
Although skills-based hiring may come and go as a popular topic in the news, ultimately it is one that is here to stay. It has long been thought that higher education was the answer to lessen the racial wealth gap, but the reality is this is not helping. According to The Hechinger Report, Black students who complete a degree are 50% more in debt than White graduates and their earnings are still 15% lower than their White counterparts. It is easy for employers to think about adopting skills-based hiring in times of need (high demand with low supply), but the challenge is getting employers to recognize the long-term benefit outside of the immediate business need. Decreasing the racial wealth gap and skills-based hiring should not be considered independent of one another. If the goal is to help make sure everyone has access to the same opportunities the solution is to recognize that skills can be developed outside of the classic education system and the college-to-work pathway.
Skills for Chicagoland’s Future works to help alleviate the challenges that come with implementing skills-based hiring; whether it is first understanding the problem, or an in-depth analysis of transferable skills for specific occupations. We’re here to support individual business needs with the perspective of the larger workforce impact.