How Universities Can Prepare for the Skills-Based Hiring Revolution

Recommendations for how universities can adapt to the shift towards skills-based hiring. Find out how aligning curricula with industry needs, focusing on learning outcomes, and understanding recruitment technologies can help students succeed in a skills-driven job market, ensuring that universities continue to be valuable pathways to career success.

The Changing Recruitment Landscape

Employability is the primary reason students choose to attend university, and degrees have traditionally been used by employers as indicators of competence. This has established universities as trusted pathways to career success. However, many employers have raised concerns that graduates often enter the workforce underprepared, lacking the necessary skills for their roles. Coupled with a growing skills shortage and concerns about accessibility to higher education, these issues have led employers to question the effectiveness and equity of degrees as indicators of competency, prompting them to explore new methods of identifying talent.

Traditionally, degrees have served as proxies for competency, based on the assumption that specific skills are acquired through these credentials. However, the trend is shifting toward the development of skills-based hiring tools that allow employers to assess actual skills, reducing the need to rely on assumptions about where those skills were gained, and diminishing the usefulness of degrees as a filter.

While skills-based hiring is not a new concept, recent advancements in technology, specifically in AI, have made it more feasible. Employers’ efforts to reduce inequity and broaden the talent pool are evident in the dropping of degrees as prerequisites for employment. Yet, only 1 in 700 positions not requiring a degree is currently filled by someone without one, indicating that other barriers, such as evaluation, still hinder widespread adoption of the practice. However, recent technological advancements are rapidly accelerating the development of tools that enable employers to streamline the process of assessing candidates and recognise competency regardless of where it was acquired. This development is critical to making skills-based hiring a reality, and we will soon see it adopted on a much larger scale.

As hiring practices innovate, they will reveal, in quantifiable terms, the alignment between the learning outcomes of traditional credentials and employers’ skill requirements. To maintain their role as a reliable pathway to employment, universities must adapt to align with employers’ needs and prepare to provide an infrastructure for expressing learning outcomes compatible with these evolving tools.

Skills-Based Hiring

Employers using skills-based hiring assess candidates’ suitability for a role in one of two ways: through direct assessments (such as interviews, quizzes, and work samples) or by analysing the skills demonstrated by the experiences listed on their CVs. Currently, most tools focus on direct assessments, which can be taxing for employers to develop and time-consuming for candidates to complete.

In contrast, tools that analyse skills from candidates’ experiences offer a more streamlined approach. These tools require less effort from candidates while providing an objective, efficient, and equitable evaluation mechanism. As technology advances, these tools are expected to become the predominant method for skills-based hiring, and this article will focus on this approach.

Regardless of the method used, candidates must prove they possess the necessary skills for a role. Therefore, universities need to prepare students by equipping them with these essential skills.

Tools that uncover skills from candidates’ experiences require standardised information beyond traditional CV details like degree titles, university names, and job titles. By using a universal language, like that defined in occupational taxonomies (which outline the specific skills required for a role), these tools can objectively and quantifiably match candidates to roles. While candidates aren’t expected to have experience performing every aspect of a role, prior education and/or work experiences can be used to assess their potential to learn and succeed in the workplace.

Focus on Learning Outcomes

Universities should consider adopting a taxonomized approach to learning outcomes to enhance compatibility with emerging skills-based hiring tools. By clearly defining and communicating the skills and competencies students gain from their programs, universities can:

• Meet the infrastructure needs for expressing learning outcomes that are compatible with the tools used by employers to assess candidates.
• Ensure education aligns with evolving labour market demands, equipping students with relevant skills.

Understanding Why Employers Value Degrees

Before assuming that employers value degrees primarily for the education they provide—and developing strategies to better align with this—it’s important to examine what else might be driving their use as a proxy for competency. After all, despite its limitations, this approach has been in place for a long time and still holds value.

The “sheepskin effect,” as discussed by economist Bryan Caplan, highlights the disproportionate value placed on the diploma itself rather than the actual education received. Caplan notes that if a student completes seven out of eight semesters, their salary is significantly lower than that of a graduate’s. Since it’s unlikely that half of a student’s knowledge is acquired in the final semester, this suggests that employers place more value on the diploma (the “sheepskin”) than on the education itself. This implies that employers use the degree as a signal for certain attributes—such as IQ, indicated by admission, and conscientiousness, demonstrated by graduation—rather than as a direct measure of knowledge. The disappointment expressed by employers regarding graduates’ lack of preparedness for the workplace suggests that this signalling is, at least partly, a subconscious process.

Explicitly Communicate Implicit Skills

Whether consciously or not, the sheepskin effect underscores why employers value higher education and can guide universities in communicating how they prepare students to meet employers needs. Beyond the attributes signalled by acceptance and graduation, university experiences foster implicit skills that are highly valued by employers. These include in-demand skills such as teamwork, leadership, and critical thinking.

Universities should consider developing a taxonomy for learning outcomes that incorporates these implicit skills. Both the subject matter (content) and the method of assessment (context) are crucial for preparing individuals for the workforce and evaluating candidates for employment. For instance, written exams, regardless of content, demonstrate valuable written communication skills. Including such assessments in the taxonomy can help employers more easily recognise the value of the credential, ultimately empowering students in their career pursuits.

The Future of Skills-Based Hiring

Advancements in technology, particularly AI, are accelerating the development of skill taxonomies and crosswalks that have the potential to align educational outcomes with occupational demands. As these tools become more sophisticated, they will provide a more nuanced understanding of individual competencies, moving beyond the limitations of traditional proxy-based hiring.

Call to Action for Universities

To remain relevant and competitive in the skills-based hiring revolution, universities should be ready to:

• Develop and communicate clear learning outcomes.
• Align curricula with occupational taxonomies and labour market demands.
• Communicate the acquisition of both explicitly and implicitly developed skills.

By doing so, universities can prepare students for the workforce and ensure that their education remains a valuable and relevant investment for both employers and students. The introduction of Skills England is expected to provide universities with key collaborators to develop solutions that align education more closely with the demands of the labor market.

Conclusion

The shift toward skills-based hiring represents a significant change in how employers assess and recruit talent. To adapt to this evolving landscape, universities must prioritise expressing and adapting learning outcomes, adopt occupational taxonomies to guide program development, and align with labour market demands. While higher education remains an established pathway to employment, it must evolve to maintain its role in preparing individuals for successful careers and providing businesses with the talent they need to effectively execute their initiatives.

By Arina Berezovsky, Senior Business Developer at Workforce Integration Solutions (WIS), London Co-Lead at Future of Higher Ed (FOHE), and Venture Scout at Ada Ventures