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Skills v Degrees

The classic distinction in economic discussions is between “skilled” and “unskilled” labor. That in itself suggests it is skills that matter, not whether a worker has earned a four-year college degree. Education is supposed to impart skills. So the two concepts inevitably overlap. “Unskilled labor” has come to refer to  jobs that do not require specific specialized skills. As well as, to jobs that require at most a high school diploma.

Educational attainment is a proxy for useful skills, but when employers are searching for talent, what do they look for?

study published this year by the Burning Glass Institute, highlighted also by the Wall Street Journal, argues that US employers have been shifting their focus from degrees to skills. This is measured by changes in the percentage of job openings that require at least a four year college degree.

The report argues that this shift is largely structural, even though it has been accentuated by the pandemic. In other words: the pandemic lockdowns increased demand for unskilled labor, such as warehouse and delivery workers; but about two-thirds of the change took place before the pandemic and is therefore likely to be long-lasting.

The evidence still raises a number of question marks, but it bears on two very important issues:

  1. The extent to which technological innovation is disrupting the nature of jobs; and
  2. The education system’s ability to keep up and provide the skills needed in a changing workplace.

Start with a few set-staging stats highlighted by the report:

About one-quarter of US jobs definitely require at least a four-year degree. You can’t (yet) be a physician or an engineer without the requisite formal education; every employer requires it. Close to four jobs in ten fall squarely in the no-degree-required category: for example delivery drivers and many retail workers. That leaves about one third of jobs in the area where a college degree might or might not be required.

Next: there is, unsurprisingly, some correlation between the tightness of the labor market and employers’ insistence on degrees. When the labor market gets very tight, with low unemployment and limited response from labor participation, employers can’t bee too picky; so if they think a job can be done by someone without a college degree, they are more likely to drop the requirement. Conversely, when the labor market is weak and the supply of workers is abundant, employers are more likely to ask for college degrees — this is indeed what happened in the aftermath of the 2008-2009 Great Recession.

In this light, evidence of a structural “reset” from degrees to skills appears thin: the Burning Glass Institute highlights a significant shift away from degree requirements between 2017 and 2019; but during that period the labor market, which had been strengthening gradually since 2010, entered in very tight territory, with the unemployment rate dropping from about 5% to a record low 3 1/2 %. Some of the move away from degree requirements might have reflected an exceptionally challenging hiring environment.

This mirrors two ongoing trends:

Employers have tended to replace degree requirements with a more granular specification of the skills they are looking for.

  • First, technological innovation is disrupting the nature of more and more jobs. Some level of digital skills is becoming necessary in a wider range of occupations; digital innovation in manufacturing is leading companies to restructure their operations in a way that needs to be accompanied by changing tasks and job descriptions.
  • Second, the traditional education system has struggled to keep pace with these changes, and to produce the skills increasingly demanded in the workplace. This in turn has contributed to the student debt problem, where a large number of students either drop out or graduate with a heavy debt burden and without the skills that would allow them to repay it. It has also contributed to a widening skills gap, notably in manufacturing.

This has started to trigger important change and disruption in the world of education and learning: it has underscored the role of community colleges and the importance of a stronger dialogue and collaboration between schools and employers; and it is spurring the growth of a more flexible education ecosystem based on micro-credentials and life-long learning.

Bottom-line: it may be too early to tell if we are witnessing a structural move away from degree requirements in job postings; but employers’ more granular focus on the skills required in a changing workplace reflects momentous underlying innovations and is most likely to continue — education institutions had better take notice.


Skill Vs. Degree: Redefining Talent in the Future of Work

Marco Annunziata

Economics & innovation, TED speaker, JuSTTHINK on Substack

Skill Vs. Degree: Redefining Talent in the Future of Work

Skill Vs. Degree: Redefining Talent in the Future of Work

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