Davos Agenda

Why skills-first hiring is the solution to the global talent shortage

This image shows a job interview, illustrating how a skills first approach could widen the job market

Could a skills first approach widen the job market? Image: Photo by Christina @ wocintechchat.com on Unsplash

Rand Ghayad
Head of Economics and Global Labor Markets, LinkedIn
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  • A skills-first approach can boost diversity within the workplace and create a path for upward mobility.
  • Flexibility in education qualification requirements enables more career pathways that offer higher-paying positions to workers who are frequently overlooked by employers.
  • A skills-first model allows employers to not only find the best workers but also retain them during a time when it is historically difficult to do so.

At a time when the skills shortage has never been more acute, how can employers fill open positions with top talent? Adopting a skills-first hiring approach can offer companies a means to fill critical skill gaps and stay competitive in a challenging labour market, as it broadens the range of candidates they consider.

Exacerbated by the COVID-19 pandemic and an ageing population, the scarcity of skilled workers has employers feeling the crunch. In February 2023, job openings in the United States exceeded 9.9 million, yet there are currently 5.8 million Americans who are unemployed. While there are many reasons for this discrepancy between available jobs and workers, it often comes down to skills.

During a period where employers across many industries face difficulties in filling open vacancies, having a degree requirement in the US automatically eliminates 64% of working-age adults who don't possess a bachelor's degree.

Unfortunately, with more and more of these jobs now requiring a bachelor's degree, approximately 80 million prime working-age Americans are excluded. This results in imbalances between the demand for talent and its supply and it can also lead non-degree holders to lose a vital path for upward mobility, furthering the already widening income inequality.

LinkedIn data indicates that the COVID-19 pandemic has further worsened these demand-supply imbalances across numerous industries. This is especially true in sectors such as accommodation and healthcare, which continue to experience a shortage of skilled workers, despite a notable slowdown in the labour market.

By assessing candidates based on their skills and abilities, rather than their academic qualifications, employers in industries where labour market conditions are still relatively tight can effectively tackle the issue of skills shortages, while also providing more opportunities for individuals seeking to enhance their employment prospects. These industries could also present an excellent opportunity for career changers and recent graduates seeking employment.

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Labour markets are cooling down, but conditions vary across industries

The effects of the pandemic, the persistently high inflation rate and the potential for a recession have forced many employers to re-evaluate their approach to human capital and talent management. While some employers have reduced their hiring plans and are reassessing their talent strategies, there are still numerous job openings that remain unfilled.

This problem appears to be more pronounced in certain sectors than in others. As a result, the demand for skilled workers continues to exceed the available supply in a number of industries when compared to the pre-pandemic era.

LinkedIn’s data from Jan 2020 to March 2023 shows that industries fall into three categories:

(1) Those where job markets are exhibiting more slack than pre-pandemic norms.

(2) Those where labour market conditions have returned to pre-pandemic levels.

(3) Those where job markets remain significantly tighter than pre-pandemic levels.

The first category comprises industries such as professional services, consumer services, education, financial services, technology and media and information. Job markets in these sectors are experiencing significant slack, with signs of a surplus of job seekers compared to the number of open jobs. The situation in these industries has worsened from its pre-pandemic norm and job seekers are having to send many more applications than before to land a job.

In the second category are utilities, transportation, retail and real estate. In these industries, job market conditions have returned back to their pre-pandemic norm after tightening considerably over the past two years. Despite this rebalancing, there are still many open jobs for people looking to work in these industries.

The last category is where labour market conditions are exceptionally tight when compared to the pre-pandemic era. In addition to manufacturing and oil and gas, this category includes a number of low-wage industries, such as accommodation, hospitals and healthcare.

These industries predominantly employ women, workers of colour and those without a college degree, historically vulnerable workers who have faced discrimination in the labour market. Here, employers are struggling to meet the rising demand for their services and firms cannot fill vacancies fast enough. The number of job openings has surpassed the number of job applicants, indicating a job seeker’s market by historical standards.

In some of these industries, firms have alleviated labour shortages by raising wages. This puts upward pressure on wages for low-wage occupations — a welcome feature of a more equitable recovery compared to past recoveries. It is a good sign of growing worker power in low-wage industries, which allows jobseekers to demand better working conditions and higher pay. But despite this, the demand for skilled workers in these industries continues to outstrip the available supply, leading to a significant shortage of qualified workers.

A skills first approach can help alleviate the talent crunch in many sectors

Given the tight labour market conditions in various industries, adopting a skills-based approach to hiring can assist companies in finding and attracting a broader talent pool to fill these positions in the long term. Globally on average, talent pipelines can increase by nearly ten times when using a skills-first approach. In the US, talent pipelines can increase by 19 times when using a skills first approach.

These practices also provide opportunities for non-traditional candidates, including individuals without typical credentials on their resumes, as well as women and additional underrepresented groups. If companies hire for skills versus traditional experience, the talent pool of women will increase by 24% more than men globally in jobs where women are underrepresented.

In the US, talent pipelines can increase by 19 times when using a skills first approach.
In the US, talent pipelines can increase by 19 times when using a skills first approach. Image: LinkedIn

Many employers have already started to embrace skills-based hiring practices as a powerful solution to challenges that have intensified since the pandemic, whether it is finding the right candidates or retaining the talent they hire. According to LinkedIn data, over the past year, more than 45% of hirers explicitly used skills data to fill their roles, marking a 12% year-on-year increase.

Moreover, the Future of Recruiting Report March 2023 finds that 75% of recruiting pros predict skills-first hiring will be a priority for their company in the next 18 months. Through a skills-based approach, employers can boost the number and quality of applicants who apply to open positions and can assist workers to find more opportunities to advance internally, which helps employers improve retention.

For employers, hiring based on skills is five times more predictive of job performance than hiring based on education and more than twice as predictive as hiring based on work experience. Employees who feel their skills are not being put to good use in their current job are ten times more likely to be looking for a new job, compared to those who do feel their skills are being put to good use. Therefore, a skills-first model allows employers to not only find the best workers but also retain them during a time when it is historically difficult to do so.

Job seekers also benefit from this approach. When LinkedIn started highlighting to job seekers that their skills matched job postings, we discovered that individuals who applied to jobs that matched their skills had a higher success rate in landing a job, often requiring fewer applications. In addition, skill qualification transparency motivated more women to apply for jobs that typically set higher self-qualification standards. Women applying for jobs increased by 1.8 times the increase observed in men, with a similar positive impact on hiring outcomes.

By removing degree requirements, more career paths that offer higher-paying positions become accessible to workers who are frequently overlooked by employers. This can aid in decreasing inequality by promoting a more diverse workforce as underrepresented groups, including Black and Latino people, are less likely to have bachelor's degrees in comparison to non-Hispanic whites and Asian Americans.

The World Economic Forum's upcoming report on Putting Skills First: A Framework for Action will set the global agenda for the actions and strategies that governments and employers can take to leverage the skills first approach. This will help the realization of maximum benefits related to business productivity and cost optimization, boost talent quality and availability and open access to good jobs for the maximum number of people worldwide. You can find out more about this report on the Reskilling Revolution website.

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The views expressed in this article are those of the author alone and not the World Economic Forum.

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Davos AgendaJobs and Skills
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