When the Economy Is Good, Employers Demand Fewer Credentials

When the Economy Is Good, Employers Demand Fewer Credentials

By Alicia Sasser Modestino and Daniel Shoag
August 21, 2018 | Harvard Business Review

Although the unemployment rate is currently at a historic low of 4%, economists are still struggling to understand why it remained so painfully high after the Great Recession—and why it took five years to return to its pre-recession level. Our research points to one possible reason: employers increased skill requirements during the recession, when high-skill workers were more plentiful, making it more difficult to fill those positions as the job market began to recover. However, since then, some employers have been lowering education and experience requirements in an effort to clear the backlog of open vacancies.

First, some context. Typically, there’s a stable tradeoff between the unemployment rate and the job vacancy rate (this is known as the “Beveridge Curve”). During a recession, the job vacancy rate falls as the unemployment rate rises, and during a recovery, the reverse happens.  However, after 2009, despite employers reporting an increasing number of vacancies, the unemployment rate hardly budged, resulting in an outward shift in the Beveridge Curve that persisted through the end of 2017.

Economists have recently begun to suspect that the shift was caused by a decrease in “recruitment intensity.” Recruitment intensity is a shorthand term to describe everything employers can do to affect the likelihood of filling a job vacancy, such as changes in advertising expenditures, screening methods, hiring standards, and compensation. Lower recruitment intensity increases the time it takes to fill a job, which means more unfilled jobs and a higher job openings rate for a given level of unemployment.  Such a change in recruitment intensity increases the tradeoff between the unemployment rate and the job openings rate, shifting the Beveridge Curve outward.

In our research, we investigate one of the most important dimensions of recruitment intensity—the skill requirements employers use to screen candidates when filling a new vacancy. Media reports during the recession indicated that employer requirements were increasing sharply, with popular headlines touting “Degree Inflation? Jobs That Newly Require B.A.’s”. Similarly, according to a survey by CareerBuilderin 2013, almost a third of employers said that their educational requirements for employment had recently increased, and specifically that they were hiring more college-educated workers for positions previously held by high school graduates…

To read the rest of this article by Alicia Sasser Modestino and Daniel Shoag , Visit Harvard Business Review: Research: When the Economy Is Good, Employers Demand Fewer Credentials