Skills-based hiring: Punching through the paper ceiling
At this point, it’s no secret that the United States has a severe talent shortage.
While it’s easy to blame all recent labor market issues on the COVID-19 pandemic, the underlying reasons for the shrinking talent pool stretch far beyond the waning impact of lockdowns and The Great Resignation.
As of 2024, the talent shortage in the US stands at 70%, meaning that a whopping 7 out of 10 employers aren’t able to find qualified candidates for their open positions.
One primary reason for the lack of available talent is that most positions still have four-year degree requirements, which is a serious barrier to entry for candidates without college degrees.
The solution?
The rise of skills-based hiring is helping close the talent gap in the United States (and worldwide).
It involves hiring based on competencies alone instead of having strict educational requirements.
Globally, 73% of companies adopted skills-based hiring in 2023, with 27% implementing the practice over the last 12 months.
Skills-based hiring has proven fruitful, with 92% of employers who have adopted it feeling it is more effective at identifying talented candidates than traditional college degree requirements.
But is taking a skills-based hiring approach right for your business?
Stay tuned to learn everything you need to know about skills-based hiring, including how to implement it in your organization.
What is skills-based hiring?
Traditional hiring practices are role-based, with job requirements relating to education, credentials, and years of experience.
However, requirements for higher education create a barrier to entry for certain candidates, specifically those without college degrees.
For instance, a candidate may possess all the skills listed in the job description. Still, if they don’t have something like a bachelor’s degree (just as an example, degree requirements vary), they won’t be considered for the position at all.
It’s important to note that years of experience also act as a barrier to entry for role-based job postings.
In the same way that a degree can prevent hiring managers from considering a candidate, not having enough years of experience can also disqualify candidates.
Skills-based hiring throws these barriers to entry out the window and focuses on one thing only: competency.
If a candidate possesses all the necessary skills required to perform the job duties associated with a role, they’re considered qualified.
Skills-based hiring practices have no underlying requirements for higher education or years of experience.
This reinforces the need for skills-based job descriptions that make it clear to job seekers that they only need the required skills to qualify for the position.
An example of skills-based hiring
Imagine that your organization is looking for a web developer who’s savvy with Python and has some experience with generative AI tools (which are relatively new).
Traditional role-based hiring would require all candidates to have a minimum of a four-year college degree in computer science and at least five years of experience.
The only problem with that is it dramatically reduces the size of your talent pool.
Not only that, but computer science college graduates may not necessarily have experience with generative AI tools yet.
Also, just because someone has been in web development for five years doesn’t mean they’re up to date with the latest technology.
Therefore, in this scenario, traditional role-based hiring is:
- Limiting your talent pool
- Walling you off from potentially better-qualified candidates who have experience with AI tools
If you took a skills-based hiring approach to the position, your only two requirements would be A) Python expertise and B) experience with generative AI.
This greatly expands your pool of available candidates, as you’re no longer limited to interviewing computer science graduates with five years of experience. Instead, you may connect with and hire a freelance web developer who’s self-taught with no degree. Despite this, they’re a wizard at Python and have mastered generative AI tools.
This fictitious scenario exemplifies why skills-based hiring is gaining so much traction, and we’re about to explore why.
Why is skills-based hiring becoming so popular?
In 2022, just 39% of companies planned to increase their spending on skills-based hiring.
That number skyrocketed to 60% in 2023, and it’s continuing to rise.
It’s clear that the skills-based approach is becoming the new norm, but why are so many Human Resources departments flocking to it?
Here’s a look at the top reasons why skills-based hiring is taking over the recruiting world.
A lack of top talent
Hiring managers have had an increasingly difficult time filling vacancies in recent years, and there are a number of reasons why.
For one, the aging workforce has been largely retiring, and there aren’t enough young skilled workers to replace them.
Young job candidates tend to lack the skills and work experience necessary to fill non-entry-level positions, which require significant upskilling.
Many young people are also choosing to focus on other things instead of their career paths.
According to the Bureau of Labor Statistics, nearly a quarter of Americans aged 20 to 34 are neither employed nor looking for work.
Almost 10% of young people plan to never work. This creates a difficult situation for businesses searching for talent. The future of work looks uncertain.
Younger candidates are also demanding remote work and hybrid schedules due to the better work-life balance they provide, which has been a challenge for some employers.
Switching to skills-based hiring allows employers to expand their talent pools and remove traditional barriers to entry, encouraging more young people to re-enter the workforce.
Also, according to research by Pearson Business School, only 13% of college graduates possess the skills necessary to get a job right now. Their existing skills are no longer relevant. They must learn new skills because technology is changing so fast. This leads us to our next topic.
Shrinking skill half-life
Another primary reason why companies are shifting to skills-based hiring is the shrinking half-life of skills right now.
Since technology is evolving rapidly, skill sets that were in demand just a few years ago are now antiquated.
This is another reason why education requirements are beginning to disappear. The skills taught in universities differ from those that organizations are currently looking for.
As stated in the fictional example, plenty of independent workers are self-taught. What they lack in formal education, they make up for with current, in-demand skills.
Employers have taken notice, which is why they’re emphasizing a candidate’s skills more than their educational background.
Better retention rates
The organizations that implemented skills-based hiring have noted its positive impacts, one of which is better employee loyalty.
When polled, 81.8% of skills-based organizations agreed that employees hired due to their skills stayed longer in their roles.
There are many reasons for this, including the fact that skills-based hiring practices are more equitable.
When candidates feel you gave them a fair shot, they may form a strong sense of loyalty to your organization, which is a plus.
Americans are rethinking college
Lastly, skills-based hiring is becoming prevalent because fewer Americans are choosing to pursue college degrees.
This sentiment has been building for quite some time, even before the pandemic.
College is a costly endeavor that often leaves students bogged down with debt that’s extremely difficult to pay off, even if they land jobs as soon as they graduate.
The Wall Street Journal and NORC at the University of Chicago polled 1,000 adults last year to determine whether they thought college was a sound investment.
Over half (56%) of adults feel it’s a bad investment, up from 47% in 2017 to 40% in 2013.
Additionally, an analysis by job site Indeed found that only 17.8% of job ads require a college degree in 2024.
More and more Americans feel college is not a good investment. This growing sentiment shows in the numbers. This shift in attitude has clearly helped skills-based hiring become more popular.
How can you implement skills-based hiring at your organization?
If you want to expand your talent pool with skills-based hiring practices, you’ll have to do away with all your educational requirements for your open positions.
This can feel intimidating for some, as you’ll have to redefine the requirements for every position at your organization. Since it’s so new, it can cause a ‘fish out of water’ feeling.
Here are some tips for adopting skills-based hiring to make the transition as smooth as possible.
Learn your skill requirements
What are the most critical skills for each position at your organization?
While your job descriptions are bound to have skill requirements already, you’ll need to revisit them after removing your educational requirements.
In particular, consider any skills you assumed were included in a four-year degree.
For example, computer science graduates are often:
- Proficient in multiple programming languages
- Familiar with algorithms and complex data structures
- Experts in database administration and management
Since these skills were grouped into your degree requirement, you’ll need to add them to your job descriptions requiring computer science degrees.
In summary, repeat this process for all the positions at your organization. Consider the skills associated with any required degree and list them individually.
Use skill assessments
In traditional hiring practices, a degree served as proof of a candidate’s competency.
If they’re able to graduate from a four-year program, it’s a good sign that they possess most of the hard and soft skills required in related job positions.
Since you don’t have that luxury with skills-based hiring, skill assessments take the place of degrees.
They provide a way for each candidate to clearly demonstrate their competency in a number of required skills, which is a huge help.
Also, don’t be afraid to get creative with your skill assessments; they’re your best tool for finding top talent.
Some common examples of skill assessments include:
- A coding test for software developers
- Having writers complete a sample article
- Pattern recognition tests
- The Myers-Briggs Type Indicator (MBTI)
- Simulated customer service scenarios
- Getting graphic designers to create sample infographics
You have many options to assess both the hard and soft skills of a candidate. These assessments clearly demonstrate their abilities in the skills your company requires.
Remain as equitable as possible
Skills-based hiring is great because it removes virtually all barriers to entry for candidates, especially those from underrepresented groups.
For example, candidates who lack the financial ability to pursue college degrees can qualify for skills-based positions.
It’s crucial to remove as much unconscious bias from the hiring process as possible, and skills-based hiring is a great way to do that. To take things a step further, ensure your hiring team comes from diverse backgrounds.
Final takeaways: Skills-based hiring
In summary, skills-based hiring practices offer employers a way to expand their talent pools and engage in more equitable hiring.
Skills-based hiring opens doors for candidates from diverse backgrounds. Instead of focusing on college graduates, employers can now consider self-taught freelancers. Define the necessary skills for each position, and skills-based hiring will lead you to success.
More Resources:
Skills gap analysis in 4 steps: How to identify and bridge talent gaps
The top technical and soft skills that look good on a resume
9 questions to ask before you rehire an employee
