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The Dangers of Degree Inflation — CEO Daily, Wednesday, 25th October

Good morning.

Yesterday’s post featured Ray Dalio’s analysis of the economic plight of the bottom 60% of the U.S. income distribution. This morning, we’re highlighting a new study from Harvard Business School, Accenture, and Year Up that reveals one reason for that plight: degree inflation.

Degree inflation is the increasing tendency of employers to demand four-year college degrees for jobs that haven’t traditionally required them. The study analyzed 26 million job postings, and found as many as 6 million that were “at risk” of degree inflation. For instance, 67% of job listings for production supervisor asked for a college degree, even though only 16% of employed production supervisors actually had one. “This is one of several factors crushing the middle of the income distribution,” said Harvard’s Joe Fuller, lead author of the study.

Why is it happening? Because employers use the college degree as a proxy for certain basic hard skills—proficiency in Microsoft Excel, for instance—as well as soft skills—such as the ability to communicate effectively, show up on time, work well in groups, etc. But interestingly, the study shows employers are paying a hefty price for this proxy practice. College graduates get paid significantly more, it takes longer to hire them, and they don’t stay on the job as long. Moreover, with unemployment among college graduates now below 3%, we are running out of them. “Employers aren’t seeing the economics clearly,” Fuller says.

A better approach would be to work with community colleges or other programs that provide non-college graduates with requisite hard and soft skills. Year Up, which I wrote about in January, is one example. Such programs can both lower costs for business and help bridge Dalio’s widening chasm between the bottom 60% and the top 40%.

Hiring based on credentials, rather than on a college “pedigree,” was one of the solutions highlighted by the two dozen CEOs who participated in the training workshop at last month’s Fortune CEO Initiative. It’s a topic that deserves more attention. You can read the full Harvard study here.

More news below.

Alan Murray

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Summaries by Geoffrey Smith;