Authored by Nicholas Colas via Convergex.com,
Last week’s Beige Book highlighted labor shortages for both skilled and unskilled workers, but perhaps employers are asking too much from certain applicants.
That’s the upshot from a report conducted by the Rockefeller Foundation and Edelman Intelligence, which surveyed C-suite executives, human resource officers, and individuals aged 18 to 26 about the entry-level job market. While the majority of employers (69%) screen entry-level job candidates for a bachelor’s degree, almost half (49%) of college graduates didn’t believe they had to attend college to acquire the skills needed for their job. In fact, most college graduates (86%) said they are learning skills outside of their college degree.
Now this isn’t to undercut the credibility or value of a college degree, but only a little over one-third of millennials actually have one. Therefore, employers need to update their screening techniques to focus on an applicants’ fit within the company culture rather than depending heavily on a bachelor’s degree to help hire and retain millennials.
Note from Nick: How many of your coworkers have a college degree? If the answer is “Most” or “all”, you might assume that most American adults have one. At that would be… Wrong. Today Jessica reviews the actual role of the 4-year degree in US labor markets. No surprise: many employers are “Doing it wrong”.
We often hear about the bloated student debt crisis, but how many millennials actually have a college degree? It may be fewer than you think. A little over a third (36.1%) of 25 to 34 year olds had at least a bachelor’s degree as of 2015, according to the Census Bureau. Still above those older than 25 overall at 32.5%, but slightly lower than 35 to 44 year olds (36.3%). More data here if you’d like to see the report.
The national unemployment rate may be at 4.5% as of March, but this number can be cut several ways looking at the unemployment rates for various degrees or lack thereof.
- Those workers with a bachelor’s degree or higher have an unemployment rate of just 2.5%.
- Even individuals with some college or an associate degree have an unemployment rate below the national average (3.7%).
- The less educated one is, the higher this figure registers: high school graduates (4.9%) and less than a high school diploma (6.8%).
Even with a low national rate, looking at these figures helps show why some Fed officials still believe there is slack in the labor market as reflected in the last central bank minutes.
- “A couple of participants reported that the ongoing mismatch between the skill requirements of available jobs and the qualifications of job applicants was a factor boosting the number of unfilled positions.”
- We understand that most Fed officials think the “U.S. economy was operating at or near maximum employment,” but remaining slack in the labor force was a contributing factor for Minneapolis Fed President Neel Kashkari’s lone dissent in March. Minutes of the Fed’s last meeting.
- Additionally, a major takeaway from the last Beige Book emphasized labor shortages for both skilled and unskilled workers. Link to report.
Moreover, Fed Chair Yellen devotes much of her policy focus on unemployment. She gave a speech titled “Creating a Just Economy” at the end of March, where she explained how “the educational disparity matters because, among many reasons, people with less education experience both higher unemployment and lower average earnings.” She followed up that “while high school graduates earn somewhat more than people who did not finish high school, the big payoff comes with a four-year college or advanced degree.”
Of course economic theory suggests the better the economy, the more work opportunities less educated workers will receive. Yet we continue to read about shortages of labor in anecdotal Fed reports like the Beige Books. It even shows up in the data looking at the number of hires and job openings each month in the Job Openings and Labor Turnover Survey. Traditionally, there are more hires than job openings, at least since the data was first tracked in December 2000. This crossed over, however, in August 2014. For the last 14 straight months, there have been more job openings than hires. Please see the chart in the pdf to this note.
Clearly there is a mismatch in qualifications that has contributed to labor shortages. Typically economists look to older workers and blame their outdated skillsets, which may be true in part. But younger adults, namely millennials, are another vector of the equation. One key problem is that the qualifications millennials believe they need for certain jobs do not always match what employers expect, according to a recent study by the Rockefeller Foundation and Edelman Intelligence.
Here’s what Rockefeller/Edelman found from a survey of +1,200 C-suite executives, human-resource officers, and individuals aged 18 to 26 on their perspective of the entry-level job market:
Ninety-seven percent of employers think “entry-level positions are important to the success of their organization,” but 43% “cite sourcing enough candidates as a top challenge around hiring and retaining entry-level jobs.”
Sixty-nine percent of employer respondents said a “college degree is a primary screening criteria for many entry-level jobs.” This response was even higher for C-suite executives (81%), but lower for HR professionals (56%).
Consequently, employers’ most difficult hiring challenge is “retaining strong talent.” This is not surprising given that 52% of “recent college graduates agree that they are too skilled for their current job.” Employers may expect a college degree, but the work they offer may not be challenging enough to retain the minority of millennials that actually have one.
Even still, employers think a college degree “is the most effective way to employ someone with the right skills required for the position.” They also use it as a screen to speed up the hiring process, pick the most qualified candidate, and assess the applicant’s work ethic, personal skills, and mental capacity, according to the survey. C-suite executives, for example, favor hiring candidates without relevant experience (63%) over those with no college degree (60%).
Here’s the wrinkle: almost half (49%) of college graduates “agree they didn’t need to go to college to have the skills needed for their job,” while “86% of recent college graduates are learning skills outside of their college degree.” Even still, “75% of opportunity youth (unemployed people aged 18 to 24 not enrolled in high school or college with no college degree) agree not having a college degree limits their job options.”
So how can employers solve the difficulties of hiring and retaining millennials? Some important points from the study:
Employers should use other screening metrics, such as behavioral algorithms, rather than focusing solely on college degrees: “The top metric for evaluating the success of entry-level employers is how well the employee fits with company culture” after all. Employers hire opportunity youth because they are motivated, have applicable skill sets, the salary fits the offered role, they have a strong work ethic, and are professional.
In terms of retaining employees, current benefits for entry-level employees include: health care plan for full-time employees; 401k, other retirement plans, or some form of financial literacy/management training or resources for employees; paid-time off; employer-provided education/training programs to enhance job skills; supervisor support to ensure job success; and offering reimbursement for classes/programs taken outside of the office.
Companies should, however, “consider offering benefits that meet [opportunity youth’s] unique needs.” The most important benefits to staying in a job include: livable hourly wage/salary; a respectful/fair manager; work/life balance; skills training specific to the job; and consistent schedule.
The most difficult challenges young individuals face when finding a job include: lack of relevant industry experience for the position, slow job market with very small amount of jobs listed; difficulty finding jobs and/or companies I am interested in; hourly wage/salary doesn’t meet needs; and lack of skills-specific training. In other words, employers may not be “reaching opportunity youth with their open job opportunities” and may not be “marketing (and developing) their company culture in a way that is attractive and inclusive of opportunity youth.”
Link to the full report.
In sum, labor shortages exist at both ends of the spectrum, for both younger and older workers. In order for companies to fill in the gaps for entry-level employees, they’ll need to adopt more evolved screening metrics that focus on how a candidate will fit within the company culture rather than relying heavily on college degrees. Some work is not challenging enough to warrant a college degree for entry level positions and loosening this requirement could help worker retention rates. Zeroing in on benefits that younger works care about the most can also keep them at their current jobs.
As our labor market evolves, companies will have to follow suit as to how they go about hiring employees. Otherwise, they will fail to develop a major chunk of the next generation of workers.