When Entry Requirements Are Raised, Is Pay?

One career trend that seems to be here to stay is the up-credentialing of occupations. By this I mean that occupational entry requirements keep going up, whether they are set by licensure requirements or by employers’ expectations. Compared to past job applicants, new candidates need more schooling, more training, perhaps having passed a new exam. One might expect that the boost in occupational credentials may give a boost to the occupation’s prestige, but does it result in increased earnings? I recently found a small data set to help answer this question.

First, let’s step back and look at the factors that contribute to the up-credentialing trend. In some occupations, workers may be raising credential requirements (for example, by forming an association that develops a certification exam) as a way of erecting barriers to the entry of new workers, with the goal of restraining competition. This is sometimes called “professionalizing,” and workers justify it on the grounds that they are safeguarding the public by ensuring that only highly skilled people are allowed to practice the occupation.

In other occupations, the set of skills required for mastery or even competency in the work may have ramped up, especially because of scientific and technological advances, and thus a longer period of study—in other words, a more advanced degree—is necessary. For example, when I prepared the third edition of the College Majors Handbook, I found that pharmacy could no longer be described as a four-year degree, as it had been in the previous edition. Audiology became a doctoral-level program a few years ago, and physical therapy is now following suit.

In still other occupations, employers may be trying to simplify hiring decisions by eliminating low-credentialed applicants. Perhaps certain academic or training programs have diminished in rigor and thus have lost their meaning as a signifier of skill mastery. Or perhaps a recession has made the ratio of resumes to job openings so great that recruiters feel it necessary to raise credential requirements to cope with the flood of applicants.

What might be the effect of up-credentialing on pay?

It seems reasonable to suppose that if up-credentialing happens because of increased skill requirements, workers should enjoy a commensurate increase in pay. This is not just a matter of fairness; in a field where the professionals are highly skilled, they often can enlist the help of less-skilled paraprofessionals and thus boost their productivity. For example, think of how physical therapists use assistants and aides to do much of the work of preparing patients and equipment so that a therapist can serve many more patients. Highly-skilled workers may also be more adept at using technology or outsourcing to be more productive and thus earn more.

It also seems likely that workers should reap higher salaries when they “professionalize” an occupation by creating credentialing barriers to competition from new entrants. I’ve blogged about one study that found that licensure provides a pay boost roughly equivalent to that of union membership: about 15 percent. Probably certification has a similar effect.

When employers require higher credentials simply to cut down the number of application letters that must be read and interviews that must be conducted, we should not expect them to increase higher-credentialed workers’ pay.

I decided to investigate the effect of raised employers’ demands by analyzing the results of a study by the labor-market researchers at Burning Glass. These researchers analyzed job ads from more than 20,000 online sources, including both job boards and employer sites. Catherine Rampell, a blogger on The New York Times Economix page, asked Burning Glass to compile a list of the occupations that have shown the most up-credentialing in the past five years—specifically, those that have seen the greatest percentage increase in percentage of advertisements specifying the bachelor’s degree compared to those not specifying this degree.

The list of 40 most-up-credentialed occupations ranges from Dental Laboratory Technicians, which experienced a 175% increase in the percentage of ads requiring the bachelor’s (from 12% to 33%), down to Sound Engineering Technicians, which experienced an 8% increase (from 60% to 65%). From this list, I was able to identify 33 occupations for which the Department of Labor publishes earnings figures. The figures for up-credentialing apply to the period from 2007 to November 2011, and for comparison I looked at the earnings figures from May 2007 and May 2011.

It turns out that, on average, a 1 percent increase in bachelor’s-requiring advertisements results in a $483 increase in average earnings. (This is a weighted average, in which the differences in the number of jobs advertised have been figured into the calculations to give greater weight to more-widely-advertised occupations.) Now, if $483 seems a small figure, consider that a 1 percent increase is also a very small amount of up-credentialing. Also consider that this earnings difference is averaged out across everyone in the occupation, not just the new, up-credentialed recruits.

On closer inspection, however, this apparent earnings effect proves illusory. I calculated the correlation between the percentage increase in bachelor’s-requiring advertisements and the percentage increase in earnings over the same period and got –0.15. This figure is too small to suggest the existence of a relationship. That negative finding, in turn, suggests that up-credentialing over the past five years was not caused primarily by the up-skilling of the occupations.

On the other hand, if recruiters were using up-credentialing mainly as a quick way of tossing out most of the resumes that crossed their desks, one would expect a decrease, or at best a below-average increase, in earnings within up-credentialed occupations. That is, if up-credentialing is the recruiters’ response to an oversupply of job applicants, then employers shouldn’t need to increase incentives for applicants to these occupations.

In fact, the (weighted) average pay increase for the most-up-credentialed occupations, about $6,000,  is almost exactly the same as the average increase in pay of all associate-degree-level occupations over the same time period, also about $6,000.

So I conclude that up-credentialing probably occurred for a mixture of reasons: actual up-skilling of some occupations mixed with oversupply of applicants for other occupations. However, I should point out that the data set I’ve been working with is quite small. Burning Glass provided figures for only the 40 occupations with the largest increases in up-credentialing. I could calculate more confident correlations if I had access to credentialing shifts, both upward and downward, for the full range of occupations.

The Fastest-Growing Transferable Skills

In the computer industry, project management skills are highly sought-after. In the energy industry, employers are expected to open many jobs for engineers skilled at hydrofracting. But these are highly job-specific skills. What about transferable skills, the kind that are useful in almost any industry and occupation? Which of these skills have the best job outlook? 

To answer this question, I looked at the 35 transferable skills in the O*NET database and calculated their correlations with the percentage of growth that the Department of Labor projects. I was able to make these calculations for the 735 occupations that are included in both the O*NET and the growth-projections database of the Department of Labor.

Below, I identify the top 10 transferable skills and explain why demand for them is growing so fast. Note that I do not order the skills strictly by ranking, but rather I cluster related skills together.

I’m not at all surprised to find the following three skills so high in the rankings. These are all very important for jobs in our largest and fastest-growing industry: health care. In addition, many jobs in all industries are placing increased emphasis on working in teams. In these work settings, active listening and social perceptiveness can be very important skills.

Service Orientation Definition: Actively looking for ways to help people. Rank: 1 Correlation: 0.5

Active Listening Definition:  Listening to what other people are saying and asking questions as appropriate. Rank: 2 Correlation:  0.4

Social Perceptiveness Definition:  Being aware of others’ reactions and understanding why they react the way they do. Rank: 5 Correlation:  0.4

The following two skills rank so high because the modern workplace is constantly changing and evolving. Workers need to master the stream of new technologies, new markets, and new business practices that affect their jobs. The second of these, learning strategies, also owes some of its high ranking to the projected high growth of teaching occupations, especially for adult education.

Active Learning Definition:  Working with new material or information to grasp its implications. Rank: 3 Correlation:  0.4

Learning Strategies Definition:  Using multiple approaches when learning or teaching new things. Rank: 8 Correlation:  0.4

The following communication skills are perennial necessities. Health-care careers, again, probably help explain the fact that speaking ranks highest of these.

Speaking Definition:  Talking to others to effectively convey information. Rank: 4 Correlation:  0.4

Writing Definition:  Communicating effectively with others in writing as indicated by the needs of the audience. Rank: 6 Correlation:  0.4

Reading Comprehension Definition:  Understanding written sentences and paragraphs in work-related documents. Rank: 9 Correlation:  0.4

One way to understand the importance of the following skill is to consider what is happening to occupations that don’t require it at a high level: They are being either taken over by automation or shipped overseas to low-skill foreign workers. The occupations with growth potential require workers to evaluate options critically to make nonroutine decisions.

Critical Thinking Definition:  Using logic and analysis to identify the strengths and weaknesses of different approaches. Rank: 7 Correlation:  0.4

No doubt you’ve heard about the projected growth of STEM careers. The following skill will be important in numerous health-care, technology, and technician jobs.

Science Definition:  Using scientific methods to solve problems. Rank: 10 Correlation:  0.4

It may no longer be possible (if it ever was) to build a career on mastery of just one of these skills. For example, someone with spectacular science skills who wants to succeed in the job marketplace will also need to be good at communicating, learning, helping other people, or some other skill. For this reason, most bachelor’s degree programs include requirements that are designed to teach a good cross-section of important transferable skills. That’s also why employers value the degree so much.

Transferable Skills with the Biggest Payoff

Everyone understands that improved skills are the key to higher income. But perhaps you’re wondering which skills carry the most clout. To make this comparison, I’m going to focus on the transferable skills in the taxonomy used by the O*NET database.

To identify the most lucrative transferable skills, I used the statistical procedure known as correlation, which measures how closely one characteristic varies along with another characteristic.

For example, when cigarette smoking first became popular, doctors noticed that heavy smokers were more often afflicted with certain diseases. Long before researchers were able to pinpoint the mechanisms by which the smoke caused harmful biological processes, they were able to demonstrate a statistical correlation between these two factors. To be sure, sometimes correlations are misleading. Some doctors once believed that there was a connection between polio and ice cream because the disease struck most often during the summer, when the most ice cream was eaten. Eventually the polio virus was discovered, and swimming was found to be an excellent way to acquire it.

Nevertheless, correlations often indicate a cause-and-effect relationship. And when it comes to the relationship between skills and employability, any employer can tell you that this is a real relationship, not like polio and ice cream. Employers look for highly skilled workers and pay them premium salaries.

So computing the correlations between the 35 O*NET skills and the occupations in the American workforce can be a useful indication of which skills have the highest value in the job market. A perfect correlation would be 1.0, meaning that any difference in skill levels between any two occupations is accompanied by a commensurate increase in the wages paid by those occupations. It would also mean that the difference goes in the same direction: higher pay when there’s higher skill. If skill increases were linked to wage decreases, the correlation would be a negative number. If no relationship existed between the two factors, just random variation, the correlation would be zero.

The following table shows, from highest to lowest, the correlations between each of the 35 O*NET skills and the median wages paid in the 747 occupations that are included in both the O*NET database and the salary surveys of the Department of Labor.

Correlations Between O*NET Skills and Occupational Wages

Skill	Definition	Correlation
Judgment and Decision Making	Weighing the relative costs and benefits of a potential action.	0.8
Complex Problem Solving	Identifying complex problems, reviewing the options, and implementing solutions.	0.7
Active Learning	Working with new material or information to grasp its implications.	0.7
Reading Comprehension	Understanding written sentences and paragraphs in work-related documents.	0.7
Critical Thinking	Using logic and analysis to identify the strengths and weaknesses of different approaches.	0.7
Time Management	Managing one’s own time and the time of others.	0.7
Systems Evaluation	Looking at many indicators of system performance and taking into account their accuracy.	0.7
Monitoring	Assessing how well one is doing when learning or doing something.	0.7
Active Listening	Listening to what other people are saying and asking questions as appropriate.	0.6
Writing	Communicating effectively with others in writing as indicated by the needs of the audience.	0.6
Systems Analysis	Determining how a system should work and how changes will affect outcomes.	0.6
Operations Analysis	Analyzing needs and product requirements to create a design.	0.6
Speaking	Talking to others to effectively convey information.	0.6
Science	Using scientific methods to solve problems.	0.6
Instructing	Teaching others how to do something.	0.6
Management of Personnel Resources	Motivating, developing, and directing people as they work; identifying the best people for the job.	0.6
Persuasion	Persuading others to approach things differently.	0.6
Coordination	Adjusting actions in relation to others’ actions.	0.6
Learning Strategies	Using multiple approaches when learning or teaching new things.	0.6
Social Perceptiveness	Being aware of others’ reactions and understanding why they react the way they do.	0.5
Mathematics	Using mathematics to solve problems.	0.5
Negotiation	Bringing others together and trying to reconcile differences.	0.5
Management of Financial Resources	Determining how money will be spent to get the work done and accounting for these expenditures.	0.5
Management of Material Resources	Obtaining and seeing to the appropriate use of equipment, facilities, and materials needed to do certain work.	0.4
Service Orientation	Actively looking for ways to help people.	0.4
Programming	Writing computer programs for various purposes.	0.4
Technology Design	Generating or adapting equipment and technology to serve user needs.	0.3
Quality Control Analysis	Evaluating the quality or performance of products, services, or processes.	0.0
Operation Monitoring	Watching gauges, dials, or other indicators to make sure a machine is working properly.	–0.1
Installation	Installing equipment, machines, wiring, or programs to meet specifications.	–0.1
Troubleshooting	Determining what is causing an operating error and deciding what to do about it.	–0.1
Equipment Selection	Determining the kind of tools and equipment needed to do a job.	–0.1
Operation and Control	Controlling operations of equipment or systems.	–0.2
Repairing	Repairing machines or systems, using the needed tools.	–0.2
Equipment Maintenance	Performing routine maintenance and determining when and what kind of maintenance is needed.	–0.2

Sources: O*NET database, release 16.0; May 2010 Occupational Employment Statistics survey. Tabulation produced by the author.

I’ll acknowledge that transferable skills are harder to learn than many job-specific skills such as Excel. You can’t take a four-week course in critical thinking and expect to boost your proficiency from zero to a level that employers want. On the other hand, critical thinking is something we all have been learning since childhood (even though certain benighted politicians are trying to keep it out of the classroom), so nobody starts from a zero level of proficiency.

Improving Your Skills, Part 2

In the previous blog, I wrote about getting ahead in your career through informal learning, either by asking co-workers for help or by creating a program of self-instruction, ideally with a study partner. (These are some ideas I include in my forthcoming book, 2011 Career Plan: The Best Moves for a Solid Future.)

Independent study is particularly useful if the skill you want to master is on the cutting edge of technology and classes are not yet available. People who work with computers do this constantly; in fact, their jobs are in danger if they don’t. Years ago, I taught myself how to use Dan Bricklin’s Demo Program, which was the best program for creating demos during the DOS era, before Windows and Visual Basic. I learned by ordering the software (and getting my employer to pay), studying the manual, and experimenting with a project.

This last element of the learning process--applying it to an actual project--is vital. You won’t retain mastery of the skill unless you have occasions to use the skill. This is part of the reason I can barely make out the Arabic alphabet these days, although I studied the language for awhile. As my visits to Saudi Arabia grew further apart, my occasions to use Arabic diminished. Nowadays the only practice I get is with the occasional taxi driver.

By contrast, my skill with the Demo program kept getting better and better for a few years, because I had repeated projects to use it on. When I first learned Demo, I used it in an actual development project I was involved with at work. Because the project would benefit from my use of a demo, my boss was willing to let me learn the skill during the workday. I improved my skills in subsequent projects. Later, I learned Visual Basic the same way and continue to use it now.

Using the skill in a project overcomes one of the downsides of informal learning: that it does not give you a tangible credential in the same way that a formal course does. Once you've used the newly learned skill in a project, you can get recognition for the skill on your performance appraisal.

To encourage skill growth through informal learning and on-the-job experience, in 2011 Career Plan I include a sample e-mail message that a worker can send to his or her boss asking for such an assignment:

E-mail That Requests Skill-Testing Assignment

I have been working on improving my ____________________ skills and would really appreciate some feedback from you regarding these skills. I believe a good way for me to get this feedback is to tackle a work task that requires these skills at a level beyond what you’ve seen me do in the past. If I handle the task correctly and demonstrate the skill, please let me know I’ve done so. If I make any mistakes, I want to know about them, too. Please let me know not just what I’ve done wrong, but how I can do the task better. I promise I won’t be defensive about your comments.

I’m not asking for extra pay for doing this, and doing it would not imply I’ve been promoted. I also assure you that I won’t let this extra task interfere with my usual work assignments. If necessary, I’ll work on this task outside of my regular work hours.

Please give some thought to what task would be appropriate—a challenge, but not so difficult that I’m guaranteed to fail. If you’re not sure, I can suggest some possible tasks that you can choose from. I’ll be happy to answer any other questions you have about this experiment.