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Dismissed by DegreesHow degree inflation is undermining U.S. competitivenessand hurting America’s middle class

AcknowledgementsThe principal authors of this report are: Joseph B. Fuller (Professor of ManagementPractice, Harvard Business School) and Manjari Raman (Program Director, Project onU.S. Competitiveness & Project on Managing the Future of Work, Harvard BusinessSchool). We gratefully acknowledge the significant and material contributions made tothe research effort as well as manuscript development by our colleagues at Accentureand Grads of Life.The research partnership was led by:Accenture: Michelle Harker, Melissa A. Moloney and Robin Boggs. Special thanks toAccenture’s Elaine Turville and Steve Stone for providing valuable advisory services.Grads of Life: Elyse Rosenblum and Valerie Beilenson. Special thanks to GeraldChertavian for providing important insights.Harvard Business School: Joseph B. Fuller and Manjari RamanVital background research was contributed by:Accenture: Emily Grandjean and James V. RayHarvard Business School: Shirley SunPlease direct inquiries to:Accenture: Melissa Moloney ([email protected])Grads of Life: Elyse Rosenblum ([email protected])Harvard Business School: Manjari Raman ([email protected])Suggested citation: Fuller, J., Raman, M., et al. (October 2017). Dismissed By Degrees.Published by Accenture, Grads of Life, Harvard Business School.Addendum: This report was updated on December 13, 2017 to add more details toAppendix 2.Report design: Terberg Design LLC

Executive Summary2What is Degree Inflation?4The Degree Inflation Research Partnership5Why We Chose the Term “Degree Inflation”6The Prevalence of Degree Inflation—and Its Significancefor EmployersHow Did We Get Here?712Understanding Employer Demand for College Degrees14Five Steps Employers Can Take to Prevent Degree Inflation24The Untapped Potential of Opportunity YouthA Call to Action for CEOsExpeditors: Led by Competency, Not esAccenture provides or may provide services to, partner with, or have other commercial or non-commercialinterests with organizations cited in this report.Grads of Life is an initiative that was created by and currently operates within Year Up, a 501(c)(3) corporation.Grads of Life and Year Up provide or may provide services to, partner with, or have other interests withorganizations cited in this report. Harvard Business School (HBS) engages with Year Up to provide internships toOpportunity Youth at HBS.This report is an independent effort undertaken by researchers at Accenture, Grads of Life and Harvard BusinessSchool. Accenture and Grads of Life provided valuable expertise and pro bono support. At Harvard BusinessSchool, the research effort was supported by the Division of Research and Faculty Development.1

EXECUTIVE SUMMARYDegree inflation—the rising demandfor a four-year college degree forjobs that previously did not requireone—is a substantive and widespreadphenomenon that is making the U.S.labor market more inefficient. Postings formany jobs traditionally viewed as middleskills jobs (those that require employeeswith more than a high school diploma butless than a college degree) in the UnitedStates now stipulate a college degreeas a minimum education requirement,while only a third of the adult populationpossesses this credential.This phenomenon hampers companies fromfinding the talent they need to grow and prosperand hinders Americans from accessing jobs thatprovide the basis for a decent standard of living. Inan analysis of more than 26 million job postings,we found that the degree gap (the discrepancybetween the demand for a college degree in jobpostings and the employees who are currently inthat job who have a college degree) is significant.For example, in 2015, 67% of production supervisorjob postings asked for a college degree, while only16% of employed production supervisors had one.Our analysis indicates that more than 6 million jobsare currently at risk of degree inflation.A survey of 600 business and human resourceleaders shows that degree inflation is driven bytwo key factors: the fast-changing nature of manymiddle-skills jobs and employers’ misperceptionsof the economics of investing in quality talentat the non-graduate level. As more middle-skillsjobs require mastery of one or more technologies,employers find it difficult to hire non-graduate talentwith the requisite skills. While candidates oftenlack hard skills, such as proficiency in MicrosoftExcel, they are equally likely to suffer from softskills deficits, such as poor written and verbalcommunications.2Over time, employers defaulted to using collegedegrees as a proxy for a candidate’s range anddepth of skills. That caused degree inflationto spread to more and more middle-skillsjobs. That has had negative repercussions onaspiring workers, as well as experienced workersseeking a new position but who lack a degree.More important, our survey indicates that mostemployers incur substantial, often hidden, costs byinflating degree requirements, while enjoying few ofthe benefits they were seeking.The results of our survey were consistent acrossmany industries—employers pay more, oftensignificantly more, for college graduates to do jobsalso filled by non-degree holders without gettingany material improvement in productivity. While amajority of employers pay between 11% and 30%more for college graduates, many employers alsoreport that non-graduates with experience performnearly or equally well on critical dimensions liketime to reach full productivity, time to promotion,level of productivity, or amount of oversightrequired.Moreover, employers incur significant indirect costs.Seeking college graduates makes many middleskills jobs harder to fill, and once hired, collegegraduates demonstrate higher turnover rates andlower engagement levels. A systemic view of thetotal economics of hiring college graduates showsthat companies should be extraordinarily cautiousbefore raising credential requirements for middleskill positions and should not gravitate towardcollege graduates based only on a vague notionthat it might improve the quality of their workforce.Degree inflation hurts the average American’sability to enter and stay in the workforce. Manymiddle-skills jobs synonymous with middle-classlifestyles and upward mobility—such as supervisors,support specialists, sales representatives,inspectors and testers, clerks, and secretaries andadministrative assistants—are now consideredhard-to-fill jobs because employers prefercandidates who are college graduates. Evenworkers who have relevant experience are excludedfrom consideration by automated tools that weed

out candidates who do not have a college degree.In our survey, two-thirds of companies acknowledgethat stipulating a four-year degree excludesqualified candidates from consideration.Degree inflation particularly hurts populations withcollege graduation rates lower than the nationalaverage, such as Blacks and Hispanics, age 25years and older. In addition, degree inflation raisesthe barriers to entry for Opportunity Youth, thenearly six million young adults who are currentlynot in school or in jobs. Companies that insist onlyon a college degree deny themselves the untappedpotential of eager to work young adults as well asexperienced, older workers as pools of affordabletalent.Key recommendations: Companies can create a competitive advantageby investing in talent management pipelinesthat match jobs to workers with the rightcompetencies and experience. Instead of seekingcollege graduates who command a premium fordoing a middle-skills job, such an approach allowscompanies to access middle-skills workers whoare often just as productive, who demonstratehigher levels of engagement and who have alower propensity to switch employers. When faced with a critical middle-skills gap, CEOscan encourage solutions that explore tapping intolocal and non-traditional talent pools, rather thaninvesting in labor-displacing capital equipmentor in incurring the high indirect costs associatedwith outsourcing or offshoring business activities. Instead of relying on a college degree to accesshard and soft skills, companies can widentheir search to include non-graduates withrelevant work experience or consider partneringwith local community-based organizations totap populations like Opportunity Youth. Suchpartnerships can put young adults on thepathway to a lifetime career or provide newopportunities for experienced, older workersdisplaced by factors beyond their control. By revisiting specifications for critical middleskills jobs and identifying the key competenciesrequired to do the job, companies can matchthem to specific associate’s degrees, certificates,or internal training programs that create careerpathways for non-degree holders. A strong case for investing in such an effort canbe made when companies measure the all-ineconomics of degree inflation. Companies who dothat math realize that often it is cost-effective tohire non-graduates and then provide classroom,web-based, or online training that is customizedto the company’s needs. Companies, educators and policymakers need towork together to bring about a systemic shift inthe way middle-skills workers are being preparedto enter the workforce. That requires partneringwith high schools, vocational colleges, communitycolleges and workforce training programs toinfluence the curriculum and design programsthat impart the hard and soft skills required inincreasingly complex middle-skills jobs. In critical hard-to-fill jobs, CEOs can reversedegree inflation by asking the organization to bemore deliberate in its hiring practices for middleskills jobs. That requires resolving a paradox: inmany organizations, while employers recognizethat candidates need to be vetted on the basisof their competence, companies rely on proxieslike educational attainment to define theapplicant pool.Dismissed by Degrees: How degree inflation is undermining U.S. competitiveness and hurting America’s middle class3

WHAT IS DEGREE INFLATION?In the 20th century, the United States prospered asa modern industrial economy, in large part due to theproductivity of its workforce. Companies flourished asskilled and trained American workers produced goodsand services efficiently. The high productivity of workersallowed middle-class Americans to enjoy growing wages andrising standards of living throughout the course of severaldecades. The U.S. economy’s competitive advantage of askilled labor force was a vital contribution to the success ofAmerican businesses in the post-World War II period.Today, U.S. companies can no longer take for granted theirability to access skilled and productive workers, and workerscannot depend on being able to find or retain jobs. Thismisalignment between the skills companies want and theskills U.S. workers currently have hurts both businesses andworking-class Americans.For example, since February 2010, small, midsize and largebusinesses have added jobs at a steady pace, averagingalmost 200,000 jobs a month,1 but they struggle to findworkplace-ready workers to fill positions that are critical togrow and prosper. In 2012, in a global survey of HarvardBusiness School (HBS) alumni, business leaders listed“better access to skilled labor” as one of the top threereasons to locate a business activity in the United States.Ironically, they also ranked “better access to skilled labor”as one of the top three reasons not to locate a business inthe United States.2 In Bridge the Gap: Rebuilding America’sMiddle Skills, HBS U.S. Competitiveness Project andAccenture surveys in 2013 and 2014 identified that thispaucity of talent especially affected middle-skills jobs—thosethat require more than a high school diploma but less thana four-year college degree. Companies reported that manymiddle-skills jobs that were critical to their ability to competewere hard to fill.3 Manpower Group’s 2016–2017 talentshortage survey confirmed that many of the hardest-to-filljobs in the U.S. are those held by middle-skills workerssuch as: trade workers, including electricians, plumbersand carpenters; drivers of trucks, heavy machinery,delivery vehicles and construction vehicles; and salesrepresentatives for all industries, especially retail.4Today’s labor market provides further proof that thejobs market is working inefficiently. Despite record-highopen job postings—more than 6.1 million at the end ofJuly 20175—millions of Americans cannot find gainfulFIGURE 1: THE U.S. LABOR FORCE PARTICIPATION RATE HAS STEADILY DECLINED SINCE 1997Population aged 16–64 involved in the workforce (rolling 12-month average), 1948–2017.78%199776%198172%Great RecessionParticipation : Bureau of Labor Statistics.Note: Shaded area indicates the recession of December 2007 to June 2009 as defined by the National Bureau of Economic Research. Civilian labor forceover civilian non-institutional population (not seasonally adjusted) ages 16-64. 1997 marks the peak of the single-month labor force participation rate, not the12-month rolling average.4

employment. Currently, the United States is home to 6.8million unemployed Americans and another 6.7 millionunderemployed Americans who are seeking full-time work.6Labor force participation in the United States declinedsteeply after peaking in 1997 (see Figure 1). By 2016,nearly one in five Americans in the prime working age of25–54 years old was not participating in the U.S. workforce.7Even though labor force participation has improved inrecent months, as of July 2017, 2.2 million young adults,ages 16–24, are unemployed,8 and another 3.6 millionAmericans, aged 25 or older, with some college experience,an associate’s degree, or a lower level of education, areunemployed.9 Too many jobs are taking too long to fill, whiletoo many aspiring workers remain on the sidelines.What is at the core of this mismatch between the supply ofand demand for middle-skills talent? When Burning GlassTechnologies analyzed millions of U.S. job postings, it foundan anomaly. In occupation after occupation, employerswere posting jobs with a requirement for a four-year collegedegree, when previously those jobs had not required such acredential. Burning Glass reported: “Employers are seekinga bachelor’s degree for jobs that formerly required lesseducation, even when the actual skills required haven’tchanged or when this makes the position harder to fill.”10skills jobs at a time when the length of time to fill positionsis at historically high levels, and the unemployment ratefor college-degree holders is at a historic low.11 Employersappear to be closing off their access to the two-thirds ofthe U.S. workforce that does not have a four-year collegedegree.12 The rising demand for college-degree holders is asymptom of serious, systemic problems affecting the middleskills jobs market in America.We, thus, set out to understand “degree inflation,” thepractice of seeking a candidate with a four-year collegedegree for a position currently held by someone with ahigh school diploma or an associate’s degree (see sidebaron Page 5 and sidebar on Page 6). Just how prevalent isthis phenomenon? What is truly behind the demand fora college degree? What role did the Great Recession playin degree inflation? Did opportunism drive the growth inemployer requirements for middle-skills jobs, or was therean underlying shift in the nature of middle-skills jobs? Whatalternatives exist for training and equipping middle-skillsworkers for those jobs beyond hiring graduates of four-yearcollege programs? Are employers aware of the costs andbenefits of those alternatives? Which companies havedeveloped talent-management pipelines for middle-skillsworkers, and what are their best practices?This phenomenon intrigued us. U.S. employers areratcheting up their credential requirements for middle-THE DEGREE INFLATION RESEARCH PARTNERSHIPIn 2014, Accenture, Burning Glass and Harvard BusinessSchool’s U.S. Competitiveness Project applied thecompetitiveness lens to the market for middle-skillsjobs—those that require more education and training thana high school diploma but less than a four-year collegedegree.13 Findings from the research published in Bridgethe Gap: Rebuilding America’s Middle Skills showed thatthe mismatch in the labor market for middle-skills jobswas hurting millions of middle-class Americans, as well ashampering U.S. companies from growing and competing inthe global market place.Burning Glass’ report Moving the Goalposts: How Demandfor a Bachelor’s Degree is Reshaping the Workforce shedsfurther light on how employers were increasingly demandinga four-year degree, even when the jobs in questionhistorically had not required one.Accenture, Grads of Life and Harvard Busines School’s (HBS)Managing the Future of Work project thus came together toresearch the specific role of degree inflation in the apparentgrowth in the middle-skills gap. All three organizations sharea commitment to ensuring maximum labor participationfrom across the demographic spectrum, particularly thosepopulations who are often unable to share in the nation’sprosperity.Grads of Life is a national talent pipeline developmentinitiative for employers that catalyzes market demandfor Opportunity Youth—young adults ages 16–24 who areout of school and out of work—by transforming employerperceptions and hiring practices. Grads of Life providesemployers with the tools and resources they need to developtheir own Opportunity Youth talent pipelines.For Accenture, the research aligns with the company’s longstanding commitment to skills and employment research;its talent development for clients around the world; and its“Skills to Succeed” corporate citizenship initiative. ThroughSkills to Succeed, Accenture aims to equip three millionpeople globally by the end of fiscal year 2020 with the skillsto get a job or build a business.The research effort is guided by an overarching definition,developed by HBS faculty members under the U.S.Competitiveness Project, of what defines competitiveness:“The United States is a competitive location to the extentthat companies operating in the U.S. are able to competesuccessfully in the global economy while supporting high andrising living standards for average Americans.”14Accenture, Grads of Life and HBS’ Managing the Future ofWork Project thank Burning Glass Technologies for sharingits labor-market data and for facilitating the analysis of themiddle-skills labor market in terms of trends in specific jobs,experience, qualifications and skills sought by employers.Dismissed by Degrees: How degree inflation is undermining U.S. competitiveness and hurting America’s middle class5

WHY WE CHOSE THE TERM “DEGREE INFLATION”In recent years, the term “middle-skills jobs” has settled onreferring to jobs that require workers with more than a highschool diploma but less than a four-year college degree.15There is noticeably less consensus on describing thephenomenon of employers requesting a bachelor’s degreefor jobs that traditionally didn’t require one. Despite being arecurring topic in academia and the media in recent years,no consistent set of terms has been established. In an effortto help clarify our use of the term “degree inflation” andprevent any confusion for other researchers, we provide herea short glossary of the various terms that are in use:Upskilling is used in academic literature to describeemployers’ tendencies to increase skills requirementsin response to labor market shifts. During the GreatRecession, when job openings were scarce but the supplyof unemployed college graduates was abundant, employerscould hire college graduates at lower wages. Researchersfound that job postings requiring a bachelor’s degree orhigher rose by more than 10% from 2007 to 2010.16 We findtha

almost 200,000 jobs a month,1 but they struggle to find workplace-ready workers to fill positions that are critical to grow and prosper. In 2012, in a global survey of Harvard Business School (HBS) alumni, business leaders listed “better access to skilled labor” as one of the top three reasons to locate a business activity in the United States.