Skills-based Hiring

Last Updated: 04/02/2024

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Overview

Skills-based hiring focuses on skills, not degrees. To succeed at a job, an employee needs the skills to perform their role and duties; this is the foundation of skills-based hiring. The increasing focus on skills is a driving force in the learn-and-work ecosystem.

The prevailing hiring model is for companies to prioritize degrees and academic achievements over practical skills in looking at job applicants’ qualifications. The recent global pandemic has forced companies to re-evaluate their hiring methods and shift to skills-based hiring. Skills-based hiring emphasizes practical, working knowledge; it prioritizes what an applicant can do, rather than the education they have.

Two major factors are contributing to the increased emphasis on capabilities rather than academic credentials:

Changes in technology. The rapidly changing and increasingly high-tech workplace requires new skills—often too new for past graduates to have acquired them during school. This undercuts the value of academic credentials as a substantial qualification. For this reason, skills-based hiring is especially widespread for technology-related jobs.
Changes in labor market supply and demand. Skill-based hiring improves the chances of a good match in today’s labor market—one in which people switch jobs and career paths frequently. In such a market, employers and workers are better served when job postings shift from being a laundry list of requirements to a list of the types of problems that employees are expected to solve. Also, skill-based hiring is, in part, a correction—a shift away from employers’ tendency to require degrees by default—or require them for jobs where they were not previously sought. This trend toward “degree inflation” began in the early 2000. Skills-based hiring can be seen as a cyclical reset, a response to shortages of skilled workers in health care, information technology, and other industries.

In 2020, LinkedIn reported an increase of 21% in job postings that advertise skills and responsibilities rather than qualifications, and an increase of almost 40% in the number of postings for jobs requiring no degree.

While technical or “hard,” skills can be confirmed through pre-employment testing, certification, and employment history, social or “soft” skills—the ability to work in groups, to communicate efficiently, or to prioritize tasks—are harder to assess. An analysis of employers in the IT industry strongly suggests that as a result, many employers are using college degrees as a proxy for them. Employers who eliminated degree requirements frequently added more detailed requirements in their postings for soft skills.

This shift to skills-based hiring has the potential to open opportunities to a large population of potential employees—often described as hidden workers—who in recent years have frequently been excluded from consideration because of degree inflation.

Also, after reducing their reliance on degree-based hiring, employers (at least, based on a study of employers in the IT industry) appear to be thinking more carefully about what capabilities they are looking for, and describing them more explicitly. This, in turn, is making job applicants more aware that they need to develop soft skills and is encouraging providers to consider how they can update their programs to include those skills.

A 2018 survey of 750 human resources leaders at U.S. employers, spanning all industry sectors and organizational sizes found that skills-based (or competency-based) hiring appears to be gaining momentum. A majority of HR leaders reported either making a formal effort to de-emphasize degrees and prioritize skills (23%) or actively exploring and considering this direction (39%). The research concludes that, in coming years, pre-hire assessment, talent analytics, microcredentialing, and other innovations will challenge the historical emphasis on college degrees in hiring. Key takeaways from the research:

The relative value of educational credentials in hiring has held steady (29%) or increased (48%) for most employers over the last 5 years.
Nearly half of employers (44%) report that they have increased the level of education preferred or required for the same job roles over the last 5 years, often due to increased skills demands for these jobs, as well as increased supply in the market.
A majority of HR leaders (64%) believe that the need for continuous, lifelong learning will demand higher levels of education and more credentials. Also, 52 of respondents believe that in the future, most advanced degrees will be completed online.
Online credentials are now mainstream, with a majority of HR leaders (61%) believing that credentials earned online are generally equal to those completed in-person.
Employer awareness and experience with candidates who hold non-degree “microcredentials” is still relatively low, but this is evolving rapidly in a growing market shaped by MOOCs and new credential offerings. Microcredentials are typically serving as supplements rather than substitutes for traditional degrees.
Work-integrated learning that is industry-aligned and employer-validated are highly prioritized by employers as indicators of credential quality.

In 2020, the U.S. Office of Personnel Management issued an Executive Order promoting skills-based hiring for federal jobs. This included increased use of valid, competency-based assessments as an alternative to academic credentials in determining qualifications for federal jobs.

Five key benefits for skills-based hiring include:

A larger pool of potential employees. Using skills-based hiring removes the barrier of having degrees and other credentials as a requirement for specific jobs. This widens the potential candidate pool to include applicants who might not have college degrees but have the necessary skills to do the job.
Getting the right person for the job. Having a degree does not automatically guarantee success in the workplace. Many companies no longer view a job candidate’s college degree as essential and do not consider educational attainment as a basis for their ability to do a job. A LinkedIn study found that 69 percent of professionals think job skills are more important than a formal college education.
Faster hiring time. The recruitment process in degree-based hiring is long because HR managers typically don’t identify and evaluate candidates’ skills until relatively late in the process. This can lead to wasted time—time that can be saved if employers focus first on candidates’ skills. Testing those skills can be quick and efficient if companies have pre-made assessments such as online skills-testing platforms.
Lower costs. Selecting candidates based on their skills and qualifications can significantly reduce the amount spent by employers on training and development. Hired candidates also can assume their duties sooner, thus preventing losses due to unfilled positions.
Improved employee retention. Hiring employees based on their skills improves the chances for a proper fit in their jobs, allowing employees to be more engaged and motivated. According to LinkedIn research, job candidates who lack four-year degrees will stay 34% longer at companies than employees with degrees. This increase in retention can increase productivity and efficiency in the organization.

Alternate Terminology

Competency-based hiring

Examples

Skillful, an initiative originally of the Markle Foundation, developed skills-based training and employment practices in collaboration with state governments, local employers, educators, and workforce development organizations to help Americans get good jobs based on the skills they have or the skills they can learn.

The U.S. Chamber of Commerce Foundation’s Job Data Exchange (JDX) is designed to help employers move toward competency-based hiring in a scalable and sustainable way. JDX is modernizing how the internet reads job data by updating the standards employers use in job descriptions. Since real-time labor market information (LMI) data relies on job descriptions, improving those descriptions will yield significant insights about in-demand skills in real time.

The T3 Innovation Network's Skills-Based Hiring and Advancement Use Case includes the T3 Network Skills-Based Hiring and Advancement Overview Video (August 2022). Other links: (1) Use Case Report: https://www.uschamberfoundation.org/workforce-development ; (2) Use Case Brief: https://www.t3networkhub.org/resources/skills-based-hiring-and-advancement-brief; (3) Use Case Data Standards: https://www.t3networkhub.org/resources/skills-based-hiring-and-advancement-lers-resumes-and-related-data-standards