Skills or Degree? The Rise of Skill-Based Hiring for AI and Green Jobs (2312.11942v2)

Abstract: Emerging professions in fields like AI and sustainability (green jobs) are experiencing labour shortages as industry demand outpaces labour supply. In this context, our study aims to understand whether employers have begun focusing more on individual skills rather than formal qualifications in their recruitment processes. We analysed a large time-series dataset of approximately eleven million online job vacancies in the UK from 2018 to mid-2024, drawing on diverse literature on technological change and labour market signalling. Our findings provide evidence that employers have initiated "skill-based hiring" for AI roles, adopting more flexible hiring practices to expand the available talent pool. From 2018-2023, demand for AI roles grew by 21% as a proportion of all postings (and accelerated into 2024). Simultaneously, mentions of university education requirements for AI roles declined by 15%. Our regression analysis shows that university degrees have a significantly lower wage premium for both AI and green roles. In contrast, AI skills command a wage premium of 23%, exceeding the value of degrees up until the PhD-level (33%). In occupations with high demand for AI skills, the premium for skills is high, and the reward for degrees is relatively low. We recommend leveraging alternative skill-building formats such as apprenticeships, on-the-job training, MOOCs, vocational education and training, micro-certificates, and online bootcamps to fully utilise human capital and address talent shortages.

Skill-Based Hiring in AI and Green Jobs: A Shift from Formal Education

The paper "Skills or Degree? The Rise of Skill-Based Hiring for AI and Green Jobs" by Eugenia Gonzalez Ehlinger and Fabian Stephany provides a rigorous examination of hiring trends in emerging professions, particularly those within AI and green industries. By utilizing a dataset of approximately one million online job vacancies in the UK between 2019 and 2022, the authors investigate whether employers in these rapidly evolving sectors are prioritizing specific skills over traditional educational qualifications, a concept referred to as "skill-based hiring."

Context and Objectives

In light of the growing demand for AI and sustainability jobs coupled with persistent labor shortages in these areas, the research explores the extent to which employers are adapting their hiring practices to focus on individual competencies. This shift could significantly increase the available talent pool, offering a broader range of candidates entry into roles that have historically prioritized formal education credentials. The paper scrutinizes empirical trends through a thorough analysis of job postings and examines subsequent effects on wage premiums for both skills and degrees.

Key Findings

1. Demand for AI and Green Skills:
   • The investigation delineates a significant increase in demand for AI roles, with postings growing by 155% over four years, contrasted against a 71% growth rate for other job types. Green jobs also experienced an 88% increase, reflecting heightened interest in sustainable transitions.
2. Educational Requirements:
   • While advertisements for AI roles have increasingly emphasized specific skills, mentions of university degrees decreased by 23% over the studied period. Conversely, green jobs have retained a premium for educational credentials, indicating divergent trends between the two fields.
3. Wage Premiums:
   • A notable discovery is the 16% wage premium for AI skills, comparable to the premium typically associated with completing a Ph.D. (17%). This underscores the high economic value afforded to AI-related competencies. For green roles, the wage premium for formal education persists, yet it doesn't parallel the diminishing educational premium observed in AI positions.

Implications and Future Directions

The paper's insights into skill-based hiring have several implications:

• Policy and Education: The results suggest a need for higher education and vocational training systems to adapt rapidly to align with industry demands. There should be an emphasis on developing alternative skill-building pathways such as MOOCs, on-the-job training, apprenticeships, and bootcamps.
• Labor Market Dynamics: The findings highlight the increasing importance of skill-specific hiring practices in addressing workforce shortages and facilitating the twin transition—combining decarbonization and digitalization initiatives.
• Corporate Strategy: Employers, particularly in AI, may benefit from evolving their recruitment strategies to focus less on formal education and more on the specific skills that drive innovation and productivity in these emerging domains.

Conclusion

Gonzalez Ehlinger and Stephany's paper provides compelling evidence that skill-based hiring is increasingly prevalent in high-demand fields such as AI, though not to the same extent in green sectors. It offers a timely examination of how labor market signaling is evolving, emphasizing the economic value of skills over formal qualifications within specific contexts. As AI and green sectors continue to grow and mature, the results suggest that stakeholders across educational, corporate, and policy domains should reevaluate and realign strategies to harness the full potential of human capital. The discussion presented in this paper is poised to contribute significantly to ongoing debates about the future configuration of workforces in technologically and environmentally driven landscapes.