More Clarity Means More Opportunity

Letter from the Chief Economist

Published on Feb 10, 2023

Written by Bledi Taska

Skills-based hiring is having a moment. 

Last week, the New York Times reported on how Pennsylvania, Maryland, and Utah have each dropped requirements for bachelor’s degrees for certain state government jobs. The story quoted “The Emerging Degree Reset,” a collaborative report from Lightcast, The Burning Glass Institute, and Harvard Business School, which explores the extent of that trend and what it means for the broader labor market. “Jobs do not require four-year college degrees,” we wrote in the report. “Employers do.”

But I think there’s been a misunderstanding. Pieces like this one suggest a zero-sum choice: if many jobs are no longer requiring degrees, then the value of a degree must be falling. I think that “either/or” framework falls short.

I believe the value of higher education has never been greater. The move toward skills-based hiring is an immense opportunity that education institutions need to embrace because it provides them the opportunity to demonstrate their value.

Let’s look at some numbers. “The Degree Reset” showed that between 2017 and 2019, close to 46% of middle-skill and 37% of high-skill occupations experienced a reset in their education requirements. But when we zoom out to the full scope of job postings data, that decrease is less than 9% over the past ten years or so. 

The simple fact is that many jobs still require at least a bachelor’s degree, and they’ll continue to do so. As of this January, 40.7% of all job postings required a college degree, according to Lightcast data, while the Census Bureau reported last year that 37.9% of all Americans aged 25 and older had one. That’s obviously not an exact match, but that dynamic is trending toward balance. 

See, the problem is not the jobs that need a college education to accomplish (like architects or  physical therapists). We need and want those to exist. 

The problem comes from jobs that create an artificial barrier because they require a degree without needing one.

Here’s what happens: a business knows its IT technician needs a certain set of computer skills. These skills can be learned in a range of settings. These technicians will also be using “soft” or “human” skills, needing to communicate with a wide variety of coworkers while being able to work both individually and in a group (and research literature has increasingly shown the value of those skills). Where does someone learn professional abilities and also how to communicate with others and prioritize tasks? College is one place, and so the employer lists a four-year degree on the job posting. But now there’s an obstacle between the job and its potential applicants, one costing an enormous amount of time and money. 

The degree reset is a game-changer for those types of roles: an employer can widen their potential pool of talent by decoupling their technical and human skill needs. The IT tech needs to know content management systems and, separately, how to work on a team. If they learned one through an online certification and the second while serving in a restaurant, great. If they learned them both at college, that works, too. 

Greater specificity in skill requirements can cut through the noise and enable better decision making for individuals and organizations alike. When employers know what skills they actually want and need in their workforce, they can plan around those wants and needs by laying out exactly what they require, and nothing more. Potential employees, for their part, can take those requirements into account and make informed choices about what jobs they want, which skills they need, and how to go about acquiring them. 

Skills-based hiring delivers clarity to the labor market in places where there is misunderstanding and miscommunication. Those problems are not the kind that can be solved by having fewer people go to college. 

In fact, this is an opportunity for higher ed, because everyone benefits from increased understanding. When the entire labor market can see clearly the benefits of higher education and the skills and jobs they lead to, that’s an advantage for institutions in their recruiting, especially because the economic return on investment in education is substantial and seems to be growing and the rise of AI will likely lead to greater need for critical thinking and social skills. 

The solution to the problem of skill-based hiring is not to discourage people from attending college, but rather to create more opportunities for those without a bachelor's degree and to find more efficient ways to test and train for social skills. The degree reset gives higher education an advantage by putting it in a position to articulate its real-world benefits more clearly.  Skills-based hiring makes the labor market more clear, and that’s how we can create more opportunities for everyone. 

Economic News 

In last week’s newsletter, I touched on the December JOLTS report, and that was followed up last Friday with the monthly Employment Situation for January. It was a strong one: the US added 517,000 jobs in January, much more than anticipated, while unemployment hit 3.4%, its lowest point in over 50 years (since May 1969). This also means unemployment went from a record high in 2020 to a record low in just a few short years. (The newest writer on our team, Elizabeth Beckett, has a blog up with a more thorough recap of the JOLTS and Jobs report, and I’d encourage you to give that a read as well.)

Unemployment rate from 1963-2023, showing that the January 2023 number is the lowest since 1969

In The Papers

This week I want to look at “Too Many Managers: Strategic Use of Titles to Avoid Overtime Payments,” by Lauren Cohen, Umit G. Gurun, and N. Bugra Ozel. And that’s because it itself is in the papers, as seen in “The Dying Practice of Time and a Half” by Peter Coy in The New York Times, which talks through its findings. 

The researchers used the Lightcast library of job postings data to look over eight years of job titles and wages, and their conclusions indicate that many employers use inflated, managerial titles to skirt overtime rules. The law states that managers don’t get overtime above a certain annual salary threshold ($35,568), but the paper found that so-called “managers” were about five times as frequent just above the salary threshold as just below it. One example the authors used was a “Director of First Impressions,” who had a managerial title, but whose work was equivalent to that of a front desk assistant. Using that title-based workaround, the “Director of First Impressions” could work over 40 hours a week without earning time and a half. 

Both the paper itself and the Coy piece discuss different regulatory causes and effects that could change this practice, and they’re worth a read. But for now I want to bring this back to my earlier point about skills-based hiring: false managerial titles throw up a smokescreen in the same way unnecessary degree requirements do. The labor market doesn’t work when we can’t agree on what a manager is or if it’s unclear whether a specific career needs a college education. Vagueness and misdirection don’t serve anyone (except, perhaps, employers who are cheating the overtime system). But speaking the same language does, and that’s why decisions rooted in clear, defensible, real-world information are the way forward. 

Until next week,

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