Why It's Time To move On From Paper-Based Hiring

Skills-based hiring is no longer aspirational

 

Employers are grappling with the task of identifying, engaging, and hiring amidst notable labor shortages. A recent McKinsey survey highlights the three primary hiring and talent challenges faced by employers: validating skills, competencies, and references; sourcing job seekers with the requisite skills; and evaluating worker effectiveness and success.

Clearly, employers are looking for employees with specific skills, but much of hiring still focuses on the requirement to have a degree. That’s a problem, because according to the US Census Bureau, just 37.9% of adults over 25 have at least a bachelor’s degree, and an additional 10.5% completed an associate degree. This means that 51.6% either have a high school diploma or no diploma at all.

This is the paper ceiling: arbitrary degree-based requirements that block job seekers who have the right skills, competencies, training, and experience, but who lack a college credential. An over reliance on degree-based hiring limits the economic mobility of those in the US workforce who lack a bachelor’s degree and are denied access to medium- and high-wage jobs, at least some of which they possess the skills to do well.

For employers, setting degree requirements for job candidates means they cannot access the full range of candidates who are capable of doing the job, but didn’t attend or finish college. That eliminates a large swath of the potential candidate pool, which cuts off a potential solution to the current severe talent shortage. According to the US Chamber of Commerce, in Jan. 2024, there were 8.8 million job openings, but only 6.3 million people were unemployed and searching for work — that’s a gap of 2.5 million workers. For skills that are in high demand, the shortage is far worse.

From the perspective of job seekers, the paper ceiling is unfair to job seekers, because it leaves many underemployed, making less money than they should in jobs that don’t use their unique capabilities.

College degrees and years of experience are very poor predictors of job performance according to a large meta-analysis of research on the topic. Given that these are often the primary points in any resume, it shouldn’t come as a surprise that resume screeners, even those powered by AI, do a terrible job identifying qualified candidates. In fact, these AI screeners suffer from a severe bias problem, according to journalist Hilke Schellman, who recently published The Algorithm, an investigation into the use of AI in hiring. In an interview, she said, “[Bias] is not a random fluke—it’s actually a pattern that things go wrong. There’s bias, and possible discrimination and harm, that these tools cost.”

Skills-based hiring is effective at identifying qualified candidates who will perform well. But, first, some definitions. "Skills” refers to both technical capabilities that people learn to do a specific job (e.g., cloud computing) or more general capabilities and attributes that are required across many jobs (e.g., interpersonal and customer skills). The key is to identify and assess those skills that are more enduring and most important to succeed in the given job and organization.

Using a skills-based approach for hiring also opens up access to a wider range of candidates, as requirements for a bachelor’s degree exclude roughly 80 million people. But beyond hiring, it’s good for retention. Employees who believe their skills aren’t being put to good use are 10x more likely to look for a new job, according to LinkedIn research. Plus, hiring on the basis of skills has been shown to improve diversity.

The vast majority of employers want to hire based on skills, not degrees. A survey of 50 global companies found 90% want to do workforce-based planning. In 2022, nearly 50 major companies – including Accenture, Google, IBM, McKinsey and Walmart – signed on to a statement to raise awareness about skills-based hiring.

At the Federal level, the Chance to Compete Act, passed the House 422-2, and, if it passes the Senate as expected, it would “implement merit-based reforms to the civil service hiring system that replace degree-based hiring with skills-and competency-based hiring.” Many states have also passed legislation.

But even though most want skills-based hiring, just 26% are actively doing so, which isn’t surprising, as skills-based hiring presents significant challenges. It can be difficult to scale, as it’s far easier for a recruiter to check a box for a degree than to evaluate each candidate for skills. Testing is a good option, but without automation, it, too, is difficult to scale.

Thankfully, automated, intelligent, online assessment can enable skills-based hiring. Modern tests provide a great user experience and have been shown to be an effective way to measure skills and competencies at scale. Hiring for skills is five times more effective than hiring for education, according to McKinsey. As a result, it expands the talent pool, increases quality of hire, reduces bias, increases talent pipeline diversity, and improves employee retention.

Skills-based hiring is not just a pipe dream; it’s a reality. It requires an investment in assessment, but the benefits are great, and they confer significant competitive advantage. Organizations can tear up the paper ceiling, benefiting candidates and employers.