The labor market today is notably different from ten years ago. There are fewer candidates with a 'traditional' four-year degree background; instead, an increasing number of young individuals are choosing online education over college, more experienced staff are pursuing portfolio careers (holding multiple jobs in sometimes unrelated fields), and many are actively acquiring new skills in different areas.
All these professionals possess important skills, but they may be difficult to identify among numerous resumes. Therefore, to help recruiters find the right candidates for their open roles, skills-based hiring has become a leading talent acquisition strategy.
Key Takeaways
Skills-based hiring shifts hiring managers’ focus from candidates’ self-reported credentials, such as degrees, experience, or job titles, to verified real-world competencies.
Educational institutions struggle to align curriculums with real job requirements. Both employers and graduates feel degrees no longer provide the competencies needed in the modern workforce. Alternative educational paths, such as online programs and professional training, are gaining traction.
Employers eliminate skills mismatches, address talent shortages, and future-proof organisational growth by focusing on candidates’ actual skills rather than how they acquired them.
Companies with skills-based hiring practices report benefits like higher caliber candidates, lower cost-per-hire, improved candidate experience, and overall team diversity.
To succeed with skills-based hiring, you need to understand the professional competencies and personal qualities needed for the open role.
Based on our experience, we recommend using skills assessments as a pre-screening method for roles with many applicants and as a reliable measure of candidate competencies for shortlisting.
Combine different types of assessments and interview formats to screen for qualities your organisation needs.
What is skills-based hiring, and how is it revolutionising the hiring process?
Skills-based hiring is a method of talent acquisition that assesses candidates based on their actual abilities and competencies instead of relying on college degrees or other educational qualifications to judge their suitability for a job.
In essence, skills-based hiring emphasises what the candidate is capable of doing, rather than focusing solely on their job titles or educational history. This approach is powerful because it enables you to attract a broader range of talent, enhances confidence in evaluating candidates, and reduces the time it takes to hire.
Hiring for skills is 5x more predictive of job performance than hiring for education and more than 2x more predictive than hiring for work experience.McKinsey & Co
Criteria | Skills-based hiring | Traditional hiring |
Focus | Emphasises skills and competencies | Prioritises education and work experience |
How talent is evaluated | Skill assessments, practical tests, and performance-based evaluations | Resumes, cover letters, and interviews |
Hiring bias | Reduces unconscious bias by focusing on skills rather than background | Prone to biases based on education, work history, and personal factors |
Diversity & inclusion | Increases workforce diversity by considering a wider range of candidates | Potentially faster due to a more streamlined evaluation process |
Candidate pool | May limit diversity due to the focus on traditional qualifications | Smaller pool due to focus on specific qualifications and experience |
Speed of hiring | Potentially faster due to more streamlined evaluation process | May be slower due to extensive background checks and evaluation of qualifications |
On-the-job performance | Higher correlation with job performance as hiring is based on skills needed for the role | Lower correlation with job performance due to reliance on formal credentials |
Employee retention | Higher retention as employees are better matched to job requirements | Lower retention due to potential skills mismatch |
Education skepticism fuels skills-based hiring.
Is a college degree worth it? Both hiring managers and job seekers have their doubts. There is a growing disconnect between what curriculums teach and what employers require. 90% of employers surveyed by Newsweek don’t believe higher educational institutions produce graduate students with “relevant skills that today’s business community needs.”
This is a global problem. For example, Germany lacks 310k professionals in science, technology, engineering, and mathematics (STEM). According to a 2023 report by The German Economic Institute, the proportion of graduates in these areas is declining.
In Belgium, the Netherlands, and France, over 60% of employers struggle to find people with the right skills, although graduate rates haven’t dropped sharply. Candidates also realise that college is no longer the ‘golden ticket’ to a successful career.
Only half of American workers believe a college degree is necessary to get a well-paid job, Pew Research found. The prospect of acquiring crippling college debt is also a deterrent. Only 22% agree the cost of college is worth it if you need to take out a loan.
In Europe and the UK, where higher education is more affordable, graduates also struggle to justify their educational decisions. In an interview with The Guardian, Noah, a 23-year-old graduate in modern history BA, found a new well-paid job because he taught himself to code during classes. That’s hardly a unique story if you browse LinkedIn.
Over 70 million U.S. adults are skilled through alternative routes and possess skill sets for more senior roles that they currently hold. Opportunity at Work
More and more workers complete online courses and training programs to sharpen their skills and get new jobs.
The new cohort of upskilling startups, such as BloomTech (software engineering), BrainStation (UX, cybersecurity, digital marketing), and Chegg Skills (various digital professions), is deferring tuition until participants secure a job.
Large corporations like Amazon, Microsoft, and Google have also launched free initiatives to prepare for the future of work.
The rise in online learning opportunities is driving further reluctance among professionals to pay top dollar or enroll in rigid-schedule, outdated programs. At the same time, it eliminates the utility of a “college degree” as a reliable proxy measure of job seekers’ qualifications — a reality that now exists among many employers.
Indeed found only 18% of job postings in the US still include degree requirements. In general, formal education requirements have declined in 87% of occupational sectors.
Why so many companies are taking a skills-based hiring approach
Traditional hiring emphasises resume screening for degree(s), titles, and years of experience — factors that don’t always indicate strong competencies. Instead, skills-based hiring has emerged as an optimal approach to verifying candidates’ competencies, soft skills, and real-world abilities acquired through a portfolio of work experiences and educational pursuits. Crucially, all of these can be verified through pre-employment testing.
Last year, almost three-quarters of companies used skills-based hiring to close the skills gaps, address talent shortages, and pursue new business opportunities.
Skills gaps
In the last 12 months, 1 in 4 organisations hired full-time roles that required new skills. Three-quarters of human resources professionals said hiring for these roles was somewhat (62%) or very difficult (14%).
Many roles now require sharp technical skills and niche competencies that didn’t exist five to ten years ago—for example, AI prompt engineering, TikTok marketing, or even knowledge of the latest business analytics or project management tools.
The evolution of competencies is also accelerating. Entry-level jobs require fewer data entry skills and more analytical or creative capabilities. New professions are emerging in response to wider economic shifts and advances in technology adoption.
Top tip:
Skills-based hiring encourages hiring managers to match job requirements with skills rather than other credentials. Then, they screen applicants using proven methods for skills assessments, such as pre-employment tests, homework assignments, case studies, and structured interviews.
Talent shortages
By 2030, 85 million open positions could remain unfilled due to limited talent supply. Technology, healthcare, and manufacturing face the tightest squeeze. However, European hiring managers also struggle to hire technicians, customer care experts, and administrative staff. On the other side of the world, Australian leaders face a shortage of qualified teachers, electricians, and sales and marketing managers.
Organisations often self-aggravate the problem by severely limiting the talent pool with unrealistic candidate requirements, below-average worker compensation, or poor workplace culture. On the other hand, companies that recently eliminated college degrees from job descriptions and started using more inclusive language are seeing a greater influx of candidates, even for competitive roles.
The Burning Glass Institute report also says that some 15.7 million people remain outside of the candidate pools because 37% of middle-skilled jobs didn’t remove the degree requirement. This, however, is changing.
Top tip:
Companies like Google, IBM, Delta Airlines, Bank of America, Walmart, and EY, among others, have ditched degree requirements for many open positions. This has led to an increased number of applicants for open roles and improved quality of hire too.
Why? The likelihood of successful hires is 60% higher for employers using skills-based methods.
Opportunity gaps
Lack of talent and skills mismatches hinder your business growth. Limited workforce capacity and skill sets are among the top barriers to digital transformations. Short-staffed teams struggle to keep the core business going and have no proper ‘headspace’ for innovative thinking. At the same time, a lack of skills delays progress on ambitious initiatives and further aggravates the divide between leaders and laggers.
Companies that switch to skills-based hiring reduce both the time to hire and the odds of mishiring. Faster hiring times mean you can act faster on new business opportunities to stay competitive and confidently scale.
The benefits of skills-based hiring
By aligning talent acquisition efforts with actual job requirements, companies get a compendium of benefits.
Higher quality of new hires
Less of a focus on college degrees and more interest in skills means successful candidates already know the ropes. As a result, 78% of companies using pre-employment assessments have improved the quality of their hires.
Such hires are quicker to become productive in the new role and are also 2.5x more likely to be high performers.
Lower cost-per-hire
The average cost of hiring an employee keeps climbing. Costs typically rise when recruiting teams spend more time (and money) on job postings, talent sourcing, and long interview processes.
Skills-based hiring platforms reduce the teams’ workload with data-backed candidate screening (based on test scores), automated candidate feedback sharing, and streamlined collaboration processes between different hiring managers.
Faster, more predictable hiring leads drive down talent acquisition costs.
Lower odds of mis-hire
Pre-employment testing brings data into your hiring process. Rather than comparing people with different titles, degrees, and backgrounds, you can stack them in terms of specific skills. With more objective data, you eliminate doubts and (un)conscious bias.
Stellar candidate experience
Candidate experience dictates your ability to attract and engage the top talents.
Slow recruiters often duplicate information requests, provide substandard candidate feedback, and struggle with interview scheduling—all common repellers for experienced candidates who know their worth. 46% of candidates will move on if they don’t get a status update within 1-2 weeks after their interview.
Skills-based hiring practices replace (often) redundant job application steps and interview rounds with a more interactive experience.
Better employee retention
Statistically, skills-based hires are 9% more likely to stay with the same company. The average skills-based candidate will stay with the company for 4.7 years, compared to 4.3 for traditional hires. This is most likely because they feel placed in a role where they can give their all and reach their best potential.
Improved diversity, equity, and inclusion (DEI) metrics
By removing unnecessary barriers, you can access a much broader and more diverse talent pool. According to LinkedIn, skills-based hiring can increase the proportion of Gen Z workers in the candidate pool by 10x and Millenial by 9x.
By eliminating requirements associated with a certain ‘pedigree,’ you open the doors for more workers from traditionally underrepresented groups. Not only do you get a better roster of applicants, but you also contribute to a more equitable job market and more diverse workplace cultures.
Challenge your perception of the ideal hire
Skills-based hiring doesn’t force you to forget about qualifications entirely. Rather, it challenges you to consider what matters most for the role. Do you need a Harvard graduate for an entry-level admin position? Or a sales manager with 10+ years of experience in big pharma to sell a wellness wearable device?
Degree inflation (aka, educational requirements for occupations that don’t require them) has resulted in companies with smaller talent pools full of overqualified candidates (and rather unsatisfied staff) in many positions.
Excessive focus on credentials creates a dynamic in which candidates are forced to over-embellish their resumes to get their foot in the door while hiring managers pass on skilled staff who don’t fit in the “box.”
At Clu, we solve this by talking to hiring managers early on about their ideal candidate profiles. We ask questions like, “What are the ‘success traits’ of an ideal hire?” rather than “What school should they have attended?”
Likewise, we use seniority levels rather than peg a precise ‘minimal years of experience’ number to an open role. Someone with five years in a teaching position and a year in project management can be as great in managing expectations and negotiating as a tenured professional.
Top tip:
Continuously challenge how you think about an ideal hire for your team. Keep a tight list of must-have skills and a broader list of nice-to-haves, which you use to qualify shortlisted candidates rather than eliminate potential job applicants.
Understand which skills you need
Skills-based hiring isn’t a silver bullet to good candidate placement. It’s a tool that helps you objectively compare real-life candidates’ skills and abilities. If you don’t know which you need, you’ll still end up with a poor fit.
Job titles and role requirements vary a lot from one company to another. A marketing manager from a small startup might handle everything from paid ads and social media marketing to external services provider management. One from a larger firm may have a more specialised skill set.
Finding a good match begins with understanding what type of person you need. Conduct a job task analysis to map the required competencies, then design a test to measure these.
Complement skills tests with great interview practices
Skills assessments verify functional skills, leaving you with more ‘face time’ for assessing other candidates’ strengths: their leadership potential, personality traits, and behavioral quirks that make or break a cultural fit.
Oftentimes, you may want a hire who shares your corporate values or meshes well with the existing team dynamics. Or you’re looking for someone with excellent communication skills to become that ‘glue’ in a slightly socially awkward team.
Structured interviews further assess whether the shortlisted applicant will match the vibe of your organisation. Likewise, interviewing dispels any misunderstanding a candidate may have about the role. Almost half of workers had quit a job because it didn’t match their expectations.
Skills vs. experience: Which really matters for job success?
Skills and work experience are connected at the hip, but one doesn’t necessarily indicate the other. Experienced professionals may lack up-to-date skill sets, while people with non-traditional career paths may have the qualifications but not the right resume title to back them.
Hiring managers recognise this and emphasise skills more than experience. Three-quarters will shortlist people with high assessment scores but not enough years of experience, and 68% will focus on people who don’t meet the minimum education requirements.
The main question is: who do you want to see in the open role? A senior professional with strong chops (and respective salary expectations) or an ambitious upstart eager to prove themselves?
Skills-based hiring can identify both types of candidates with greater predictability and in less time.
It’s time to get a Clu.
Want your People & Talent functions to be more cost-efficient, data-rich, legally compliant, and significantly more equitable? Clu’s TalentGPS™ is the AI plug-in that significantly increases your hiring accuracy, equity, and ROI.
We exist because 90% of applicant tracker systems initially filter candidates based on keywords, career dates, and previous job titles—none of which determine whether someone can do a job.
It’s time to get a Clu.