By Ryan Craig and Monica Herk
September 17, 2018

As hordes of college graduates flood the labor market, their demographics reflect a troubling trend. According to the National Center for Education Statistics, 42.1% of whites ages 25-29 have bachelor’s degrees, compared with just 22.8% of blacks and 18.5% of Hispanics. Minority students attend college at far lower rates than their white counterparts do—and when they do attend, they are far less likely to graduate.

Sadly, higher education’s diversity problem is magnified in the world of work at a time when degrees are being required for entry-level jobs that haven’t historically required them. Just 25% of insurance claims and policy processing clerks, for example, had bachelor’s degrees in 2014, yet half of the open positions at the time required one. That means the millions of Americans who haven’t donned a cap and gown have no chance to prove themselves worthy of the lowest rungs of the corporate ladder.

This challenge is exacerbated by the advent of technologies that render candidates without degrees invisible for most jobs. The posting of jobs online has, for example, made it so easy to search for and apply to jobs that nearly every posting generates hundreds of resumes. Large employers have responded by turning to keyword-based filters to screen out CVs that don’t sufficiently match keywords, like “degree,” in the job description.

Interestingly, this top-of-the-funnel talent problem hasn’t gone unnoticed in places like India, where a growing number of employers now utilize competency-based assessments (CBA) to sort candidates touting degrees from thousands of new (and often middling) private universities. An applicant for a position might be asked to complete a short online assessment of cognitive and soft skills or situational judgments that predict performance in that job. The advent of online delivery and advances in psychometrics mean that a range of skills—including the ability to learn quickly—can be reliably assessed at the beginning of the hiring process.

In Europe, employers like Nestlé now require CBAs, rather than degrees, as the first filter among would-be employees. In 2016, EY stopped requiring degrees for entry-level positions, and a year later announced a 10% improvement in hires from state schools.

Such a shift may, however, be decades from occurring in the U.S., where employers risk running afoul of 1970s-era labor law if such assessments have an adverse impact on members of a legally protected group. The rule of thumb on adverse impact comes from the 1978 Equal Employment Opportunity Commission (EEOC) Uniform Guidelines, which established the 80% rule: if the hiring rate for any subgroup is less than 80% of the rate for the group with the highest hiring rate, that assessment or practice has an adverse impact—regardless of the employer’s intent. Protected classes currently include those based on race, color, religion, sex, national origin, age (over 40), disability, and genetic information.

While the EEOC has historically been the enforcer on adverse impact—sending tens of thousands of letters annually to U.S. employers—under the Obama administration the Office of Federal Contract Compliance Programs (OFCCP) became an even more aggressive watchdog. While the EEOC can’t initiate action until a job applicant files a complaint, the OFCCP is empowered to launch “desk audits,” in which it reviews hiring records in search of adverse impact.

There are two ways for employers to avoid adverse impact actions. The first is to demonstrate content validity, construct validity, and criterion validity for each CBA-job pairing; that is, the employer must conclusively show that each assessment is predictive of performance for each position where it is used. While understandable, the process of a priori validation for every CBA-job pairing is so time- and resource-intensive that only a handful of U.S. employers have shown any interest.

The second option is to steer clear of such assessments, which is what virtually every U.S. employer has done. It’s gotten so bad that a growing number of U.S. firms only utilize such assessments to hire overseas. This means U.S. labor law is distorting the U.S. labor market by conveying to American employers that they can hire offshore candidates more accurately.

But labor law has ignored the far-reaching and disparate impact of degree requirements. Given the significantly lower degree completion rates for minority groups, it’s impossible to imagine that requiring a BA doesn’t have adverse impact, particularly for positions like an executive assistant, in which it would be an extremely difficult to demonstrate content, construct, and criterion validity for a bachelor’s degree requirement. Why haven’t degree requirements been challenged as well? According to Charles Sullivan, an associate dean and employment law expert at Seton Hall Law School, “No one is interested in upsetting this apple cart.

Rather than quashing the adoption of assessments, our diversity watchdogs would be well served to adopt a safe harbor for employers replacing degree requirements with assessments. Employers could demonstrate good faith by agreeing to closely monitor and discontinue uses of assessments that decrease hiring of protected groups in relation to historic practices. But prohibiting assessments altogether is allowing the perfect to be the enemy of the good.

Today’s labor market represents the collision of 21st century technology with outdated regulation. It is creating confusion that stymies both inclusion and economic competitiveness. Outside the U.S., employers are taking advantage of competency-based assessments to transition from pedigree- and degree-based hiring to competency-based hiring, improving the accuracy of hiring and the efficiency of labor markets. Labor law remains profoundly important to protect equal opportunity. But it must evolve to serve those who cannot afford the time and cost of a college degree.

Ryan Craig is the managing director of University Ventures and the author of A New U: Faster + Cheaper Alternatives to College. Monica Herk is an adviser to University Ventures.

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