In workforce development, most proposed solutions focus on supply-side interventions. Indeed, surveys of businesses demonstrate that many employers are facing a skills gap when looking for qualified talent.1 Even with increased digital skills, improved training programs, and more employer engagement in developing a curriculum, however, a major barrier to job seekers still remains the same: will they be hired?
Upcredentialing refers to employers’ tendencies to seek a higher level of credential, including a college degree, for positions that traditionally have not required that credential.2 This trend affects job seekers, employers, and economy as a whole. To successfully address the changes in our economy and the needs of employers, we must also examine the shift in degree requirements and hiring practices.
Shifting Preferences for Workers
Researchers have conducted several studies pointing to the trend of upcredentialing.3 A study in 2014 using real-time labor market data through online job postings discovered a significant gap between the current workforce and the requirements posted on job advertisements. For example, 65 percent of job postings for executive assistants required a college degree in 2014, but only 19 percent of employees in that role currently had that degree.4
The most notable finding of this research was the impact on middle-skills jobs — jobs Federal Reserve System research has noted are opportunity occupations: providing a living wage and accessibility without a four-year degree.5 These job openings like IT support specialists, construction supervisors, and accounting clerks all showed significant gaps between the current workforce and the new skills required to obtain the job. A 2017 study conducted in partnership with Harvard Business School and Accenture took a deeper look at this trend, analyzing over 26 million job postings and surveying nearly 600 employers. The report, “Dismissed by Degrees,” focused specifically on the problem with the shifting landscape of qualifications for jobs they defined as degree inflation as part of upcredentialing, or “rising requirements for the four-year college degree.”6
Moving beyond industry credentials that are common in fields like health care or new certificate requirements that are often a response to changing technologies, this report specifically examines the need for and prevalence of four-year degrees in traditionally middle-skills jobs. In the analysis of job postings and interviews, researchers found that more than 50 percent of jobs that were traditionally considered middle-skills opportunities now require a degree. Only 34 percent of Americans ages 24–29 have a four-year degree, but researchers found that 14 percent of all job advertisements — nearly 10 million jobs — ask for education beyond what the job title would imply.7
Why Is This Happening?
During the recession and in the recovery shortly thereafter, workers with higher education were more willing to consider an opportunity for which they may have traditionally been considered overqualified. While the labor market dipped from 2007 to 2010, the percentage of job openings requiring a college degree increased by more than 10 points.8 Other research suggests that while middle-wage jobs were a majority of jobs lost during the recession, nearly three-fifths of jobs recovered have been in low-wage, low-skilled work.9 Therefore, educated workers may have been more willing to consider a middle-skills jobs, given the shortage of opportunities.
The trend of degree inflation may also be impacted by other economic trends. Changing technologies in the workplace require that workers have more advanced digital skills and science, technology, engineering, and mathematics (STEM) education. Research reports that nearly eight out of 10 middle-skills jobs now require digital skills.10 Even with the shifting nature of technology and the recovery from the recession, many of these technical skills can be learned outside a classroom or four-year degree program.
Beyond hard skills, the bachelor’s degree has also become a stand-in for soft skills. One employer interviewed cited the college degree as indicative of “office readiness” of job seekers to put themselves through four years of college. Likewise, a sales manager reported that “for many companies, a bachelor’s degree signals that the person has put themselves through four years of college, so they have certain life experiences, commitment levels, and organization levels.”11
This “signaling” effect of college degrees, where employees signal their respective skills to employers, has been observed in the job market by economists like Michael Spence, who argues that even if education does not contribute to an employee’s productivity, it can hold value in the job market for an employer.12 Susanna Williams of BridgEd strategies observes that “employers use degrees as a signal for class and, to some degree, emotional stability and maturity.”13 In the absence of other “signaling” tools to demonstrate workplace competencies, employers use the college degree as an easy proxy for qualities like strategic thinking, self-direction, and working well with groups.14
Cost to Companies
As demonstrated in Spence’s research, the degree does not necessarily indicate an employee’s productivity. Research on predicting job performance based on education is inconclusive. Just as degrees are different in focus and technical skills mastery, the productivity of workers varies greatly. Thus, the “proxy” indicated by employers and this economic trend may be an easy means of filtering out candidates, but it does not necessarily result in return on investment. In fact, recent studies have indicated it may actually cost companies more.
The first cost companies incur is an increased time to hire for middle-skills positions now requiring a college degree. In the case of IT computer user support specialists (help desk positions), the average number of days to fill the position increased 40 percent when adding the college degree requirement.15 For front-line construction supervisors, the time to hire increased 117 percent from under thirty days to nearly two months for each position. The increased time to hire is expensive for both businesses and the regional economy. HR managers have reported that unfilled job openings can cost companies up to $800,000 a year.16 On a larger scale, the Centre for Economic Research estimates that unfilled jobs cost the U.S. economy more than $13 billion a month, or roughly $160 billion a year.17
Degree inflation results in additional indirect costs to companies from employee turnover. Although college graduates may be willing for a time to take a middle-skills position such as an administrative assistant, they are less likely to stay in that position. Researchers note that for middle-skills job, college graduates “demonstrated higher turnover rates and lower engagement levels” over periods of time.18 The Society for Human Resource Management estimates that employee turnover can cost 25–200 percent of that employee’s salary, depending on time to rehire and retrain.19
Furthermore, employers are paying direct costs for college graduates who traditionally demand a higher salary for middle-skills positions. Harvard Business School reports that employers pay 11–30 percent more for college graduates, and yet “report that nongraduates with experience perform nearly or equally well on critical dimensions like time to reach full productivity, time to promotion, level of productivity, or amount of oversight required.”20 By adding a degree requirement to a middle-skills occupation, employers are taking on direct costs with no demonstrable gain in productivity, while also paying indirect costs for time to hire and employee turnover.
Cost to Job Seekers
In spite of the push for college education over the past several decades, as of 2011, only 59 percent of high school graduates actually enroll in college. Out of those 59 percent, 44 percent never complete their degree.21 This trend is even more pronounced in areas like Philadelphia, where only 27 percent of the population has a college degree, resulting in nearly 800,000 residents over the age of 25 being screened out of these historically middle-skills jobs.22
The National Student Clearinghouse Research Center reports that “more than 31 million Americans have enrolled in college left without a degree” during the past two decades, yet the four-year degree remains the main point of entry for living wage employment in the U.S.23 While some policymakers appropriately focus on getting more young people into college, understanding this trend requires a deeper understanding of why young people aren’t completing their degrees.
A report surveying students who drop out of college indicated 71 percent leave school to keep their jobs.24 The second-most frequent reason for leaving college: “I just couldn’t afford the tuition and fees.” Indeed, the college degree continues to be an extremely expensive barrier to opportunity. For both public and private institutions, the cost to attend college has increased in the past three decades. With prices adjusted for inflation, private, four-year institutions increased tuition 129 percent between 1987 and 2017, with tuition and fees averaging $34,740 a year.25 Although they remain more affordable, public four-year institutions’ tuition and fees have nearly tripled in the past thirty years. The cost of room and board only increases the price families must be willing to pay to send a child to college.
The cost of college tuition is not equally attainable for all families. In 2012, 75 percent of families would have had to pay an amount equivalent to nearly a quarter or more of their annual income to cover the average net price of tuition for one student.26 While Inside Higher Ed reports that the increase of tuition and fees has slowed to 2 percent this past year, the amount of financial aid offered has not kept pace with tuition increases.27 Paying off college can be a multidecade commitment, with nearly 6.8 million Americans between 40 and 49 still paying off student loans.28 For low-income students, this means attending four-year institutions requires incurring debt that may hamper economic mobility in the long run.
Jaison Abel and Richard Deitz report that the cost of college is not only the cost of tuition or direct cost, but also the opportunity cost of not working during the four-year period of a bachelor’s degree. The researchers estimate that “pursing a bachelors’ degree would forgo almost $96,000 in wages — nearly four times more than net tuition costs.”29 For low-income families, that opportunity cost is a major deterrent when income is needed immediately in the household.
This increasing need for a college degree in middle-skills jobs perpetuates a cycle of inequality in that “most Americans need a high-paying job in order to afford the four years of college, and yet they need a college degree to be able to get a high-paying job.”30 Low-income job seekers — particularly young people of color — are most affected by degree inflation and upcredentialing.31
The return on investment of a four-year degree is undeniable32, but its costs can represent a barrier to entry for a middle-skills job that many cannot afford.
Innovations in the Field
A growing number of companies are recognizing that degree inflation keeps otherwise qualified candidates out of the talent pool. In surveys by Harvard Business School researchers, nearly two-thirds of the companies acknowledged that “stipulating a four-year degree excludes qualified candidates from consideration.”33 Indeed, in this tight labor market, companies are increasingly thinking about solutions to access qualified talent.
Fuller, Raman recommend that the first step to address the situation is to diagnose degree inflation in your own company. Which jobs now require a four-year degree that did not previously? Why was that shift made in the hiring requirement? The survey of employer preferences demonstrates that there may be other valuable aspects of potential candidates that can be considered as alternatives to a college degree, such as previous work experience.
Skills-based hiring has been a topic of discussion among academics, policymakers, and the workforce development field as a way to shift hiring practices to finding talent based on ability to perform. Addressing the degree inflation trend can open employers to diverse and qualified talent that has often been screened out. New technologies in online job applications amplify this problem by automatically excluding workers who do not meet education requirements. While employers may be open to hiring individuals who have work experience and comparable skills, these online applications screen out qualified talent. To reverse this trend, some companies are adopting an alternative framework: screening in.34
The concept of skills-based hiring is not new to the field of human resources or employers. Managers have used aptitude tests in a variety of fields, including the military screening for individuals in the armed services.35 Managers give recruits tasks to complete that are similar to the tasks that will be performed on the job and evaluate competencies accordingly. Similar skills assessments are now being adopted by technology companies, including IBM, which shifted away from four-year degree requirements in favor of assessing technical skills.36
While jobs that require physical performance are easier to assess for skills, jobs in the knowledge economy can be much more complex. Some of the challenge arises when assessing soft skills such as critical thinking, adaptability, resiliency, or conflict management. Education and workforce organizations have shifted away from the term soft skills, since the language implies that they are easy or irrelevant, instead using phrases like foundational skills or power skills.37
As innovations have advanced in the field of skills-based hiring, more employers are using new technologies to quantify and signal the presence of these foundational skills, which have traditionally been considered difficult to measure. Online platforms like Core Score, ACT, SkillSmart, and others help employers assess for soft skills and screen in qualified candidates. Workforce professionals understand that to close diversity gaps, organizations need to develop and measure soft skills in a tangible way. Bridgette Gray from Per Scholas said, “Closing diversity gaps is about developing and measuring soft skills in a way that makes sense to employers.”38
Understanding the economic imperative and the need to remain competitive, some anchor institutions are leading the way in this shift toward skill-based hiring. The City of Albuquerque, NM, made a commitment to assess entry-level positions using core competencies with ACT. Albuquerque is now using ACT’s WorkKeys to assess candidates’ strength, focusing particularly on young people who may not have a college degree or high school diploma.39 In Boston, Tufts Medical Center held a hiring fair in September 2017 using Core Score assessments as an additional way to screen in qualified candidates.40 The number of employers taking up this charge has grown in recent years from small businesses to large companies like Ernst & Young and Cisco.41 When Penguin Random House leaders made the decision to drop degree requirements in job advertisements, they understood that they would be eliminating bias in the hiring process and thus be able to recruit and retain people “from different backgrounds with different perspectives to have a workforce that truly reflects today’s society.”42
Another step companies can take is identifying partners in local organizations, nonprofits, and community colleges that provide the training and screening for competencies necessary in the workplace. The Skillful State Playbook recommends assessing partners in the workforce ecosystem as a key first step in shifting to a skills-based labor market.43 Rochester, NY–based manufacturing firm Optimax addressed labor shortages by partnering with local nonprofits and community colleges through the Finger Lakes Advance Manufacturing Enterprise (FAME).44 Optimax HR manager Alejandro Mendoza said, “We aren’t primarily concerned with credentials; we look for people from our partnerships who want to work with their hands, want to learn, and want to grow with the company.” Through the TechHire initiative, Opportunity@Work encourages community partnerships to help meet the demands of the growing tech sector, while using a validation tool to assess coding skills of job seekers without college degrees.45 Likewise, firms can reassess the important competencies necessary to be a successful employee and consider alternative partners and pathways for individuals without a college degree.
With a tight labor market and increasing shifts in middle-skills jobs, addressing degree inflation has become an economic imperative. Research demonstrates that businesses are the key to addressing this dilemma, and “employers should take the lead in addressing the skills gap, in part by reversing the degree inflation.”46 While increased investments in training and skills are necessary, employers have a role to play in closing the gap around middle-skills jobs. By screening in qualified candidates with other workplace competencies rather than screening out candidates, businesses can remain competitive and improve the overall economy of their region.
The views expressed here do not necessarily represent the views of the Federal Reserve Bank of Philadelphia or the Federal Reserve System.
Federal Reserve Bank of Philadelphia, Manufacturing Business Outlook Survey, Philadelphia: Federal Reserve Bank of Philadelphia, March 2017, available at https://www.phil.frb.org/research-and-data/regional-economy/business-outlook-survey/2017/bos0317.
Douglas Lederman (2014), “Credential Creep Confirmed,” Inside Higher Ed, September 9, available at https://www.insidehighered.com/news/2014/09/09/demand-degrees-grows-many-fields-havent-required-them.
See Burning Glass Technologies (2014), Joseph B. Fuller, et al. (2014), and Keith Wardrip, Stuart Andreason, and Mels de Zeeuw (2017).
Burning Glass Technologies, “Moving the Goalposts,” 2014, available at https://www.burningglass.com/wp-content/uploads/Moving_the_Goalposts.pdf.
Keith Wardrip, Kyle Fee, Lisa Nelson, and Stuart Andreason, “Identifying Opportunity Occupations in the Nation’s Largest Metropolitan Economies,” Philadelphia: Federal Reserve Banks of Philadelphia, Cleveland, and Atlanta, September 2015, available at https://www.philadelphiafed.org/-/media/community-development/publications/special-reports/identifying_opportunity_occupations/identifying_opportunity_occupations_report.pdf.
Joseph B. Fuller, Manjari Raman, et al., “Dismissed By Degrees,” Boston: Harvard Business School, October 2017, available at https://www.hbs.edu/managing-the-future-of-work/Documents/dismissed-by-degrees.pdf.
Jamai Blivin and Merrilea J. Mayo, “A Nation Upside Down,” Innovate+Educate, 2018, available at http://innovate-educate.org/a_nation_upside_down/.
Fuller, Raman, et al., 2017.
National Employment Law Project, “The Low-Wage Recovery and Growing Inequality,” August 2012, available at https://www.nelp.org/publication/4050/.
Burning Glass Technologies, “Digital Skills Gap,” available at https://www.burningglass.com/research-project/digital-skills-gap/.
Fuller, Raman, et al., 2017.
Michael Spence, “Job Market Signaling,” Quarterly Journal of Economics, vol. 87, issue 3 (August 1973), pp.355–374.
Susanna Williams (2016), “A College Degree Will Not Save You,” BridgEd Strategies (blog), October 28.
The Rockefeller Foundation, “The State of Entry-Level Employment in the U.S.,” New York: The Rockefeller Foundation, March 2017, available at https://assets.rockefellerfoundation.org/app/uploads/20170320171306/Impact-Hiring-Survey-Results.pdf.
Burning Glass Technologies, 2014.
CareerBuilder (2017), “The Skills Gap is Costing Companies Nearly $1 Million Annually, According to New CareerBuilder Survey,” press release, April 13, http://press.careerbuilder.com/2017-04-13-The-Skills-Gap-is-Costing-Companies-Nearly-1-Million-Annually-According-to-New-CareerBuilder-Survey.
Indeed.com (2014), “The Cost of an Empty Desk: Research finds nearly $160B lost annually due to unfilled job opportunities in the U.S.,” press release, November 18, available at http://press.indeed.com/press/the-cost-of-an-empty-desk-research-finds-nearly-160b-lost-annually-due-to-unfilled-job-opportunities-in-the-u-s-3/.
Fuller, Raman, et al., 2017.
Richard P. Finnegan, “Placing Dollar Costs on Turnover,” Society for Human Resource Management.
Fuller, Raman, et al., 2017.
William C. Symonds, Robert B. Schwartz, and Ronald Ferguson, “Pathways to Prosperity: Meeting the Challenge of Preparing Young Americans for the 21st Century,” Boston: Pathways to Prosperity Project, Harvard Graduate School of Education, February 2011.
Octavia Howell and Susan Warner, “Philadelphia’s Poor: Who they are, where they live, and how that has changed,” The Pew Charitable Trusts, November 2017.
National Student Clearinghouse Research Center, “Some College, No Degree: A National View of Students with Some College Enrollment, but No Completion,” Herndon, VA: National Student Clearinghouse Research Center, available at https://nscresearchcenter.org/signaturereport7/.
Jean Johnson, Jon Rochkind, Amber Ott, and Samantha DuPont, “With Their Whole Lives Ahead of Them,” New York: Public Agenda, 2011, available at https://files.eric.ed.gov/fulltext/ED507432.pdf.
The College Board, “Trends in Higher Education,” 2017, available at https://trends.collegeboard.org/college-pricing/figures-tables/tuition-fees-room-and-board-over-time.
Sara Goldrick-Rab (2016), Paying the Price: College Costs, Financial Aid, and the Betrayal of the American Dream, (Chicago: University of Chicago Press).
Rick Seltzer (2017), “Net Price Keeps Creeping Up,” Inside Higher Ed, October 25, available at https://www.insidehighered.com/news/2017/10/25/tuition-and-fees-still-rising-faster-aid-college-board-report-shows.
Federal Reserve Bank of Philadelphia, Consumer Credit Reporter, available at https://www.philadelphiafed.org/eqfx/webstat/index.
Jaison R. Abel and Richard Deitz (2014), “Do the Benefits of College Still Outweigh the Cost?” New York: Federal Reserve Bank of New York, available at https://www.newyorkfed.org/research/current_issues/ci20-3.html.
Blivin and Mayo, 2018.
Grads of Life, “Workforce Wins: The Case for Building Opportunity Youth Talent Pipelines,” February 2018, available at https://gradsoflife.org/workforcewins/.
Abel and Deitz, 2014.
Fuller, Raman, et al., 2017.
Blivin and Mayo, 2018.
Erica Price Burns and Deirdre Dlugoleski (2016), “Skills-Based Hiring: A Primer,” white paper, (New York: General Assembly and Whiteboard Advisors), available at http://enterprise-go.generalassemb.ly/skills-based-hiring-whitepaper.
Ruth Umoh (2017), “IBM wants to hire employees who don’t have a 4-year college degree,” CNBC.com, November 7, available at https://www.cnbc.com/2017/11/07/why-ibm-wants-to-hire-employees-who-dont-have-a-4-year-college-degree.html.
Lila Ibrahim (2017), “Let’s Call ‘Soft’ Skills What They Really Are: Power Skills,” Coursera (blog), September 19, available at https://blog.coursera.org/lets-call-soft-skills-really-power-skills/.
Burns and Dlugoleski, 2016.
Tufts Medical Center (2017), “Hiring Fair,” press release, August 29, available at https://www.tuftsmedicalcenter.org/News-Events-Media/Press-Releases/2017/Hiring-Fair.aspx.
Lucy Sherriff (2015), “Ernst & Young Removes University Degree Classification From Entry Criteria As There's 'No Evidence' It Equals Success,” The Huffington Post UK, August 4, available at http://www.huffingtonpost.co.uk/2016/01/07/ernst-and-young-removes-degree-classification-entry-criteria_n_7932590.html.
Mark Newman (2016), “How Much Should College Degrees Matter to Employers Today?” Inc.com, August 4, available at https://www.inc.com/mark-newman/rewriting-the-book-on-hiring-bias.html.
Karen Kahn (2018), “Optimax Systems: Business Logic of Continuous Learning,” National Fund for Workforce Solutions, February, available at https://nationalfund.org/learning-evaluation/publications/optimax-systems-business-logic-of-continuous-learning/.
Steve Lohr (2017), “A New Kind of Tech Job Emphasizes Skills, Not a College Degree,” The New York Times, June 28, available at https://www.nytimes.com/2017/06/28/technology/tech-jobs-skills-college-degree.html.
Fuller, Raman, et al., 2017.