In nations around the world, higher education policies and funding schemes are largely predicated on human capital theory: the concept that investments in education (and especially degrees) develop skills that are valued by employers, thus driving occupational attainment and earnings.
However, the prevailing view that the economic value of degrees is only related to hard skills and job capabilities misses the nuances of how human resource – HR – executives and hiring managers at global corporations actually interpret and use degrees in the screening and hiring of job candidates.
Degrees as useful if imperfect signals
These dynamics have recently made headlines in the United Kingdom in a discussion about whether the ‘signalling’ value of degrees is appropriately accounted for in the government’s evaluation of the economic returns on education.
How major employers use degrees as professional credentials is, of course, of worldwide relevance and research on the hiring practices of major global employers shows that degrees are among their most important hiring criteria.
Degrees are a key currency powering the knowledge economy – but without a well-functioning market and clearer articulations of degree outcomes, the hegemony of degrees is threatened by technology and globalisation.
Beyond a measure of technical skills and general knowledge alone, degrees are often favourable indicators of softer yet critical attributes such as perseverance, meeting deadlines, acculturation and leadership ability.
These are captured by the economic theory of signalling and screening: the idea that the most productive workers use degrees not only to gain knowledge and build skills, but also to ‘signal’ their abilities and competencies to employers through the earning of credentials.
Employers likewise use degrees to ‘screen’ or filter the most promising candidates. This is one of the reasons why reputation, student selectivity and ranking are so important in higher education: if degrees were commodities and skills were the only thing that mattered, where or how a degree was earned would have little meaning.
Yet, when we consider the highly subjective and qualitative nature of reputation as an example, we can see that the utility of the degree as a proxy for ability may be at risk over the long term.
A number of factors contribute to higher education today maintaining a near monopoly on credentialing – but a more efficient market appears on the horizon.
First, especially when viewed from a global perspective, there is a lack of standardisation in degree credentialing that holds back comparability and introduces inefficiency. Many of the major corporations powering the world economy hire and operate in very diverse and disparate markets.
With the arrival of transnational education as well as the increased mobility of workers across borders, these firms increasingly face the challenge of understanding how a degree earned in India or Germany compares to one earned in Canada or the UK, and what these credentials signal or represent.
Consider how challenging this can be even within nations. What a given degree represents or signals can vary between jurisdictions, institutions and perhaps even departments within the same university.
The European Union appears far ahead of other regions with the Bologna process – but this type of integration, of course, has its difficulties.
Just as standardising the width of railroad gauges and internet protocols catalysed booms in economic productivity, a set of more transparent standards for learning could herald a greater efficiency for the global economy.
However, global harmonisation of degree standards appears unlikely – not least because standardisation is not especially desirable to incumbent institutions and governments.
Similarly, internet-based technologies and ecosystems have not yet provided a solution to optimise credentialing and job placement in the same way that they have revolutionised other sectors of the economy.
Even though a large share of employee recruiting is facilitated through technology, the interface between universities, individuals and their credentials and employers is often low-tech.
In the United States, a number of start-up companies and projects are emerging focused on the third-party documentation, validation and publication of learning and competencies – with examples including Degreed, Parchment, Smarterer and the Mozilla Foundation’s Open Badges project. While these are still nascent, they bear monitoring.
In this direction it is worth noting that the business model and vision of successful professional social network LinkedIn has a similar tone of documenting and verifying professional skills in relationship to job opportunities.
Further, perhaps surprisingly, employers themselves are still operating at a relatively unsophisticated level when it comes to evaluating degrees.
Most major companies are conducting surprisingly little analysis aimed at evaluating their university recruiting activities or the relationship between educational credentials and employee performance (for example, correlating the degrees of their best-performing employees with areas of study and institutions attended).
However, this is likely to change as competitive pressures demand a more rigorous focus and talent management software enables the deployment of ‘big data’ and analytics-driven solutions.
Room for potential value creation
A recent report from Deloitte Consulting placed the implementation of ‘talent analytics’ and the rethinking of employee acquisition strategies at the top of the list of human resource professionals’ challenges and priorities, both in the UK and also in many regions globally.
In the US as an example, employers spend an estimated US$125 billion annually on hiring and recruiting. The global market for higher education is measured in the trillions of dollars. The scale of these figures is itself a signal of the value of better understanding and optimising the relationship between university degrees and the global job market.
* Dr Sean Gallagher is chief strategy officer at Northeastern University in Boston, United States.
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