Skills-Based Hiring Series: Is it Worth the Investment?

What makes skills-based hiring worth investing in.

Skills-based hiring - where an individual is hired based on an understanding of their skills rather than purely on acceptance of a qualification such as a degree - has been the focus of much discussion in the education and recruitment fields.

Many companies have moved away from requiring qualifications that take years to achieve as measurements of ability. Reasons for this include the need for agility and adaptability in upskilling given the speed of change in technology and related working practices. This has prompted a move towards accepting skills and experience as proof of competence.

But has a move towards skills-based hiring produced successful results that justify investing in the new recruitment processes that go with it? Or are employers right to be cautious?

Studies of skills-based hiring

To explore the possible benefits of implementing skills-based hiring, I will refer to a couple of significant studies on this topic. A:

1. 2024 study by The Burning Glass Institute and Harvard Business School

2. 2023 study by the consulting group BCG and labour market analysts, Lightcast

The findings from the studies are summarised in, respectively:

1. Skills-Based Hiring: The Long Road from Pronouncements to Practice¹ (2024 study)

2. Competence over Credentials: The Rise of Skills-Based Hiring (2023 study)

Both studies used Lightcast labour market datasets, analysing:

• Up to 316 million online job postings

• Up to 65 million worker profiles, career histories and resumes/CVs

• Outcomes relating to jobs that usually required a bachelor’s degree or higher, for those hired:

  • Without a degree (skills-based hires)

  • With a degree (traditional hires)

Benefits identified by the studies, and considerations for those investing in skills-based hiring, are summarised here.

Benefits for employers

Retention

Both studies found that employee retention was positively impacted by skills-based hiring.

The 2024 The Burning Glass Institute / Harvard Business School study that found:

“Skills-Based Hiring boosts retention among non-degreed workers hired into roles that formerly asked for degrees. At Skills-Based Hiring Leader firms, non-degreed workers have a retention rate 10 percentage points higher than their degree-holder colleagues.”

This represents a small increase on a similar finding by the BCG/Lightcast study a year earlier (2023), showing that:

“…skills-based hires are more loyal to their employers. They have a 9% lengthier tenure at their organizations compared with traditional hires.”

Reducing turnover

This positive impact on retention will likely be appealing to employers given the costs associated with recruitment.

These fees can be significant, with some estimating that the real costs of recruitment are up to 3-4 times the employee’s salary.

Reducing turnover through increased retention, therefore, could represent a significant saving for companies.

Benefits for employees

Salary increase

Employees were also found to benefit from skills-based hiring. The authors of The Burning Glass Institute / Harvard Business School report also commented that:

“Workers benefit as well. Non-degreed workers hired into roles that previously required degrees experience a 25 percent salary increase on average.”

Promotion rate

The BCG/Lightcast study found that for some roles promotion was higher for skills-based hires, with an overall finding that:

“Generally, those hired on the basis of skills get promoted at a rate comparable to that of traditional hires. They were only 2% less likely, on average, to be promoted in the same period as their traditionally hired peers.”

Benefits for society

Fairness?

Another metric often attributed to skills-based hiring is the idea that it is fairer, particularly for those who may have been held back from gaining degrees for socioeconomic reasons.

However, the 2024 The Burning Glass Institute / Harvard Business School report points out that despite the move to not requiring degrees, many candidates that are hired do still have a bachelor’s degree or higher. They found:

“...the net effect is a change of only 0.14 percent in incremental hiring of candidates without degrees.”

In terms of the numbers of candidates analysed, this means that for those without degrees there was:

“... new opportunity for only approximately 97,000 workers annually, out of 77 million yearly hires.”

The upshot of this means that:

“For all its fanfare, the increased opportunity promised by Skills-Based Hiring has borne out in not even 1 in 700 hires last year [2023].”

In other words, hopes that skills-based hiring would result in fairer hiring practices, have not yet been realised.

Return On Investment

So, let’s return to the question: “Is skills-based hiring worth the investment of time and changes required to make it work?”

A note of cautious and qualified optimism is raised by The Burning Glass Institute / Harvard Business School report authors. They comment:

“Our analysis makes clear that successful adoption of Skills-Based Hiring involves more than simply stripping language from job postings. To hire for skills, firms will need to implement robust and intentional changes in their hiring practices – and change is hard. Still, despite the limited progress to-date, our analysis shows that, for those who embrace it, skills-based hiring goes beyond corporate virtue signaling. It yields tangible, measurable value.

Overall, neither The Burning Glass Institute / Harvard Business School or BCG/Lightcast study explicitly stated that skills-based hiring results in employees who are better at doing their job.

However, perhaps that finding could be inferred to an extent from other benefits that the studies found.

The benefits identified by the studies raise interesting questions about employers’ and employees’ satisfaction with skills-based hiring:

• Increased retention

  • Did employers want to hold on to skills-based hires longer?

  • Did skills-based hires experience greater job satisfaction and want to stay with the company longer?

• Salary increases

  • Did employers reward skills-based hires with higher salaries for doing a good job?

  • Did skills-based hires achieve higher salaries because better paid jobs were opened up to them?

• Promotion rates

  • Did employers promote skills-based hires because they were better at their job than traditional hires?

  • Did skills-based hires seek promotion due to the skills-based hiring recruitment practices employed by the company?

Certainly employers are likely to be pleased with benefits that would result from the above, such as:

• Lower turnover

• Lower costs for recruitment (due to lower turnover)

• Improved productivity

  • (If increased salary and promotion rates = happy workers = improved productivity

  • See University of Oxford’s study: Happy workers are 13% more productive)

Skills-based hiring series

Despite the potential benefits and increased interest in skills-based hiring, the studies show that how to do it well remains an unknown or challenge for many.

This post is one of a series focusing on skills-based hiring, exploring the following:

• Does skills-based hiring take more time than traditional recruitment practices?

And,

• Is skills-based hiring worth the investment of time and changes required to make it work?

In future posts we will explore considerations relating to the skills-based hiring process, system requirements, HR training/upskilling, organisational culture change and costs.

1. Sigelman, M., Fuller, J., Martin, A. (February 2024). Skills-Based Hiring: The Long Road from Pronouncements to Practice. Published by Burning Glass Institute