Degree Inflation: More Employers Raising Minimum Education Requirements for Job Candidates

In some industries, this practice reaps bigger revenue wins

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A recent survey published by Lorin Hitt (professor, Wharton School, UPenn), Prasanna Tambe (Stern School, NYU) and Matt Ferguson (CEO, CareerBuilder) found that employers are upping the ante when it comes to education requirements. More than 2,700 employers were included in a survey that found that nearly 18% of private-sector companies increased their educational requirements over the past five years.

Similarly, 32% of employers say they’re hiring college-educated workers for jobs traditionally filled by people with high school diplomas.

The question remains whether higher education requirements will lead to employee retention and a boost to the bottom line. Research from Hitt, Tambe and Ferguson points to new evidence. The authors analyzed the career histories of more than 20 million resumes, connecting these workers to the bottom lines of employers. They found the following: For some job functions, particularly in areas that don’t traditionally require a college education, hiring more workers with college degrees appears to significantly affect a company’s bottom line.

Take these results when companies hire more college-educated customer service workers:

  • A company that increases its number of customer service workers with bachelor’s degrees by 10% is associated with about $26,000 higher value added per employee.

For sales workers:

  • A 10% increase in sales workers with college degrees is associated with about $31,000 higher value added per employee.

However, these positive associations, the analysis discovered, do not exist for all occupations. The correlation disappeared for IT workers, as authors found that skills and other IT-related intangible capital depreciate almost as fast as a company’s physical assets, lending credence to the view that hiring for degrees alone cannot ensure a successful workforce in tech-related occupations.

The survey of human resource managers and hiring managers appears to validate the correlations. Of employers hiring more workers with college degrees for jobs traditionally held by a lower-educated workforce, 64 percent cite higher quality work, 45 percent cite higher productivity, 22 percent cite higher revenue, and 18 percent cite greater customer loyalty.

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