How skills-based hiring can help close the racial wealth gap 

The average Black or Hispanic household in the United States earns about half as much as the average White household.[1]

This phenomenon, known as the racial wealth gap, embodies racial inequality in the United States, threatening the economic security of the families it affects and the economy as a whole. 

The racial wealth gap doesn’t just appear in wage disparities between different racial groups. It also appears in the hiring process. 

Most notably, traditional hiring practices (those emphasizing degrees, work experience, and unstructured interviews) are prone to bias and exclude minority groups from many high-paying jobs. 

Skills-based hiring overcomes bias by implementing multi-measure testing that focuses on candidates’ skills and potential to add to existing culture – not their race, education, or class background. 

This guide explores five ways skills-based hiring eliminates bias to help close the racial wealth gap.

✅ Overcome biased hiring to close the racial wealth gap

What is the racial wealth gap?

The racial wealth gap refers to the large financial disparity among racial and ethnic groups in the United States regarding income, assets, and access to opportunities. 

Although this disparity is not limited to the United States or White and Black communities alone, Black Americans bear the brunt of its effects, making up 13% of the population and holding just 4% of the wealth. 

White Americans, on the other hand, make up 60% of the population and hold 84% of the wealth. 

The racial wealth gap results from centuries of oppression and discrimination of Black and non-White communities within the United States.

What are the effects of the racial wealth gap? 

In addition to the legacy of inequality that has contributed to this gap, several significant symptoms of the racial wealth gap are felt today. 

1. Diminished education opportunities: Low-income children who are disproportionately Black or Hispanic experience more gaps in educational resources than their White counterparts. This poses a significant threat to a public education system meant to guarantee equal opportunity and a chance at a better life for all students. 

2. Unemployment disparities: There is a two-to-one disparity in unemployment between Black and White workers. The common assumption is that the disparity is solely caused by the former group’s lack of education or skills. In reality, even with educational inequalities, Black Americans have made considerable gains in high school and college completion. But still, the unemployment disparity exists. 

3. Disparities in earnings: Even when minority groups get advanced degrees, own their own homes, and get higher-paying jobs, their wealth is still much less than their White peers. 

Why does the gap still exist? 

This begs the question: If non-White workers, and especially Black workers, are continuing to make advancements in education and skills, why does the racial wealth gap still exist? 

A wealth of empirical and anecdotal evidence shows that discrimination is a primary factor in the persistence of the racial wealth gap. 

Bias is an umbrella term that includes behaviors like discrimination, harassment, or other actions that target individuals or groups because of personal characteristics or expression. 

As it pertains to the racial wealth gap, unconscious bias and hiring discrimination is mainly responsible for preventing minority groups from entering the workforce or being paid fairly if they do. 

Hiring bias isn’t always in the form of blatant discrimination, and hiring managers often unknowingly act upon their unconscious biases throughout the hiring process. 

For example, many hiring managers believe their instincts are their best guide when deciding who to hire. 

In reality, first impressions are inherently biased and do not predict whether or not a candidate can perform in a role. Negative impressions especially last longer than positive ones and can persist for up to 72 months. 

What does this have to do with the racial wealth gap? 

If hiring managers rely on the impressions they get from candidates rather than provable, measurable skills, they risk discriminating against candidates from different backgrounds – in this case, non-White candidates. 

5 ways skills-based hiring fights bias to help close the racial wealth gap 

Skills-based hiring practices combat unconscious bias by eliminating traditional, bias-prone hiring practices that require degrees, resumes, and unstructured interviews. 

Instead, skills-based organizations focus on hiring for culture add and upskilling (and reskilling) potential.

Let’s look at the five ways skills-based hiring can help close the racial wealth gap for your organization. 

1. Eliminate degree requirements 

If your company requires degrees, you may unintentionally contribute to the racial wealth gap. 

Many companies rely too heavily on degrees to determine a candidate’s skill level, which is contributing to the worrying trend of degree inflation, even though degrees prove nothing about a candidate’s skill level and are prone to bias. 

Candidates with low incomes, BIPOC candidates, and applicants with disabilities are disproportionately affected by degree inflation. 

Research shows that degree inflation screens out 83% of Hispanic candidates and 76% of African American candidates. 

Degree requirements introduce bias against non-White candidates in two ways: 

1. Only considering applicants who had the opportunity to attend college. As of 2020, the college enrollment rate was 64% for Asian applicants, 41% for White applicants, 36% for Hispanic applicants, and 36% for Black applicants. 

Because of the racial wealth gap, many Black and Hispanic students applying to college rely on financial aid to help bridge the gap. However, considering home ownership and retirement savings in determining financial assistance also perpetuates racial disparities in college.[2] 

1. Only considering applicants who had the opportunity to complete college. Degree inflation is biased against non-White candidates who can’t afford to complete their degree. In fact, White students are 250% more likely to graduate than Black students from public universities. Even if Black students are able to afford to get into college, the odds are not in their favor that they will be able to graduate.

Recent college graduation data bears this out.[3] 

By contrast, more than half of college graduates are White.

Skills-based hiring overcomes bias by eliminating degree requirements in favor of multi-measure skills assessments, which include hard and soft skills tests, situational judgment tests, personality tests, and structured interviews to measure competencies, not education. 

According to TestGorilla’s State of Skills-Based Hiring 2022, 91% of employers saw increased workplace diversity when using skills-based hiring. 

If you are hiring a software engineer, for example, knowing the candidate’s race and whether or not they attended school has very little to do with whether or not they can build a software program. 

Instead, an employer should focus on testing the skills relevant to a software engineer job by using a test such as our Software Engineer test. 

This test, like all of TestGorilla’s tests, judges the candidate on their ability to do the actual job, rather than any other factor. 

2. Eliminate resume requirements 

According to research from 2017 by Katherine DeCelles, minority candidates who “whiten” their resumes by omitting references to their race have greater success getting job interviews.[4] 

Companies are twice as likely to call non-White applicants for interviews if they have ‘whitened’ resumes than they are to call minority applicants without them. 

Another resume whitening test found that employers who claim to be pro-diversity and have job postings that strongly encourage minorities to apply were just as racially biased as employers that made no such claims.

Simply put, resumes expose employer biases that can cause discrimination in hiring. 

Research shows that resumes are not accurate predictors of job success and cannot demonstrate a candidate’s actual skills.[5] 

Instead of asking for a written document explaining where a candidate lives, their GPA, where they went to school, and their previous experience, skills-based hiring requires candidates to prove their ability to do the actual job. 

Hiring candidates based on skills instead of what’s on their resume inevitably helps shrink the racial wealth gap and broaden your talent pool. 

Why? Because skills aren’t limited to a single race, ethnicity, or experience level. Ditching resumes and opening up your talent pool to those who haven’t attended or finished school brings more diverse talent into your organization and improves your business. 

What’s the alternative? Instead of relying on resumes, employers should ask a candidate to take a situational judgment test, for example. 

Situational judgment tests are psychometric tests that assess candidates on a series of work-related questions. 

These tests help combat bias and discrimination in hiring by being anonymous. In other words, the recruiter doesn’t have any information about the person besides their test responses. 

Eliminating degree and resume requirements also opens the door for STARs or candidates who are “Skilled Through Alternative Routes” to succeed in roles that traditional hiring practices exclude them from. 

3. Eliminate unstructured interviews 

Unstructured interviews unfold like casual, free-flowing conversations with off-the-cuff questions and unpredictable answers. 

This may be an enjoyable way to get to know a candidate as a person, but it says very little about that candidate’s skills. They also widen the racial wealth gap. 

Unstructured interviews are bias-prone because they are not designed to assess candidate skills or identify specific candidate attributes objectively. 

Instead, they let the interviewers’ first-impression bias become a determining factor in whether or not to hire a candidate. 

According to a 2000 study by Frank Bernieri, a psychology professor, it takes an interviewer just 10 seconds to form a first impression about a candidate. The interviewer then spends the remainder of the interview trying to confirm that initial opinion.[6]

If the interviewer has an unconscious racial or class bias, an unstructured interview has no stop gaps to prevent that bias from negatively impacting the interview process. 

Federal law bars employers from discriminating against job candidates and current employees based on race, age, and gender. 

This law, known as the Equal Employment Opportunity Act (EEOA), prohibits interviewers from asking questions that can lead to discrimination, like those regarding age, race, gender, and sexual orientation. 

In an unstructured interview setting, there is a much greater risk of asking these questions outright or asking similar questions to gain the same information. This can lead to discrimination. 

Take this job candidate’s experience, for example: 

This graduation question does not openly violate the EEOA, but to the candidate’s point, it’s actually not at all relevant to whether they can do the job. 

The fact that they graduated some time ago can open the door to the interviewer’s bias against older candidates, candidates who took additional time to complete their degree program, or those who never attended school at all.

Skills-based hiring runs structured interviews that guarantee none of the above EEOA questions, or questions similar to those, are asked. 

Here’s how structured interviews differ from unstructured interviews: 

• Ask every candidate the same pre-established questions in the same order

• Are scored using a scorecard created beforehand 

• Create a more objective interview process that is designed to evaluate candidates’ skills rather than educational background 

It’s essential to keep in mind that structured interviews are not the silver bullet when it comes to closing the racial wealth gap. 

Interviews will never be completely free of racial bias. If the interviewer’s decision-making is racially motivated, then their opinion of the candidate will be, too. 

However, skills-based hiring ensures that even if a hiring manager has unconscious bias, it does not ultimately impact which candidate gets the job. 

Structured interviews are an extension of the data-driven, multi-measure testing practices that identify skilled candidates and assess whether they can perform well. 

They are a critical piece of the future of hiring that can help close the racial wealth gap by including skilled non-White and BIPOC candidates in the hiring process and labor force. 

4. Hire for “culture add” instead of “culture fit” 

Another way that traditional hiring practices widen the racial wealth gap is by hiring (or not hiring) candidates based on “culture fit.” 

On the surface, hiring candidates that fit your company culture seems a great way to expand your talent force with employees that match your organization’s values. 

In practice, culture fit tells a different story. 

This hiring strategy puts hiring managers and interviewers in a situation where they have to measure vague, subjective, and unquantifiable attributes like a candidate’s values. 

In reality, the interviewers often end up searching for what they have in common with the candidate, like similar interests, opinions, or personalities, which have very little to do with a candidate’s skills or growth potential. 

If you’re hiring for someone that reminds you of yourself or people you know, a candidate’s race plays an inherent role in whether they will be considered a good culture fit. 

Take Sandra Okerulu, for example. She had an interview with a New York company and thought it went very well.[7] 

Then she was told that she wasn’t a good fit. 

With a resume that matched perfectly with the job’s requirements, she wondered if it was because she was a woman or non-White, or both. 

The growing employment gap suggests Sandra’s instincts were most likely correct. 

Employment rates measured between December 2020 and December 2021 show that while the overall unemployment rate shrank, unemployment for Black women in the US increased from 4.9% in November to 6.2% in December.[8]

For non-White candidates to climb the workplace ladder and begin to close the racial wealth gap, they must first be hired by an organization that values diversity instead of running from it. Embracing this diversity is essential for companies and organizations to advance society. 

Hiring racially diverse candidates is not only the right thing to do, it actually makes businesses more profitable. Research shows that racially diverse companies are more likely to outperform their peers by 35%.[9] 

Diversity in the workplace benefits organizations because diverse companies are: 

• More innovative 

• Better problem solvers

• More adaptable 

• More productive 

• More profitable

• Better equipped to serve their diverse customer base

Adding to an existing company culture introduces candidates from all backgrounds with different skills and strengths to challenge the status quo. 

Skills-based hiring offers assessments like the Culture Add test that evaluate how a candidate’s behaviors and values align with your organization’s and how they will build upon your existing culture. 

Helping close the racial wealth gap requires more than simply interviewing more people of color. It requires a conscious effort to change your organizational culture, eliminate groupthink, and embrace diverse opinions, backgrounds, and worldviews. This can even the playing field and make your business more profitable. 

5. Offer upskilling and reskilling opportunities 

The racial wealth gap isn’t closed just because you’ve hired a skilled non-White candidate. 

Employers must invest in employee development post-hire and establish equitable and accessible employee skills training. 

Focusing on upskilling can help address racial disparities in industries like tech, where Black employees make up 7.4%, and Hispanic employees make up 8% of the workforce.[10] 

Employee upskilling is when employers help their workers gain skills that add to their existing skill set or prepare them to take on more responsibilities. 

Employee reskilling is when employers give employees opportunities to learn new skills so they can move to different roles within an organization. 

What do these have to do with the racial wealth gap? 

Although surges in hiring DEI specialists to help close the racial wealth gap are a helpful resource to employees of color, upskilling and reskilling opportunities are where companies actually make good on their promises to improve racial equity.[11] 

If a tech company hires a Hispanic worker because they have provable coding skills valuable to the business, that’s a great first step. But it doesn’t significantly impact that 8% figure from earlier. 

If such organizations genuinely care about closing the racial wealth gap, they don’t just hire more Hispanic coders. They also upskill each individual to a level where their lived experience, expertise, and skills help to determine the company’s direction. 

The result: BIPOC in the workforce have equal access to high-paying jobs and valuable skills training once they are hired, to earn and grow just as their White counterparts do.

Upskilling and reskilling become a vehicle for marginalized groups and racial minorities to grow their careers and overcome historic disadvantages. 

Overcome biased hiring to close the racial wealth gap 

Traditional hiring practices that require degrees, resumes, culture fit, and run unstructured interviews are not only bad for business; they also widen the racial wealth gap. This deepens racial divides and negatively impacts local and global economies. 

Skills-based hiring eliminates these requirements and replaces them with multi-measure assessments that remove bias and welcome racial minorities into the workforce. 

And it doesn’t stop there. Once candidates of color become employees through skills-based hiring, their development is nurtured, their skills are expanded, and they gain opportunities to take leadership positions to develop the existing company culture. 

Closing the racial wealth gap is a complex issue that demands more than just filling open roles with skilled, racially diverse talent. 

Combating bias and discrimination at the beginning of the hiring process and throughout an employee’s career helps level the playing field for historically disadvantaged people of color. 

Learn more about how to adopt skills-based hiring practices for your organization to help close the racial wealth gap.

Sources

1. Aladangady, Aditya; Forde, Akila. (October 22, 2021). “Wealth Inequality and the Racial Wealth Gap”. The Federal Reserve. Retrieved May 31, 2023. https://www.federalreserve.gov/econres/notes/feds-notes/wealth-inequality-and-the-racial-wealth-gap-20211022.html

2. Levine, Phillip; Ritter, Dubravka. (September 27, 2022). “The racial wealth gap, financial aid, and college access”. The Brookings Institute. Retrieved May 31, 2023. https://www.brookings.edu/blog/up-front/2022/09/27/the-racial-wealth-gap-financial-aid-and-college-access/

3. Bouchrika, Imed. “Number of College Graduates: 2023 Race, Gender, Age & State Statistics”. Research.com. Retrieved May 31, 2023. https://research.com/universities-colleges/number-of-college-graduates

4. Gerdeman, Dina. (May 17, 2017). “Minorities Who ‘Whiten’ Job Resumes Get More Interviews”. Harvard Business School: Working Knowledge. Retrieved May 19, 2023. https://hbswk.hbs.edu/item/minorities-who-whiten-job-resumes-get-more-interviews 

5. Beard, Alison. (September-October 2019). “Experience Doesn’t Predict a New Hire’s Success”. Harvard Business Review. Retrieved May 31, 2023. https://hbr.org/2019/09/experience-doesnt-predict-a-new-hires-success

6. Bernieri, Frank. (May 2000). “The importance of first impressions in a job interview”. Midwestern Psychological Association. Retrieved May 19, 2023. https://www.researchgate.net/publication/313878823\_The\_importance\_of\_first\_impressions\_in\_a\_job\_interview 

7. Epstein, Sophia. (October 20, 2021). “What does being a ‘cultural fit’ actually mean?”. BBC Worklife. Retrieved May 31, 2023. https://www.bbc.com/worklife/article/20211015-what-does-being-a-cultural-fit-actually-mean/ 

8. Broady, Kristen; Barr, Anthony. (January 11, 2022). “December’s Jobs report reveals a growing racial employment gap, especially for Black women”. The Brookings Institute. Retrieved May 31, 2023. https://www.brookings.edu/blog/the-avenue/2022/01/11/decembers-jobs-report-reveals-a-growing-racial-employment-gap-especially-for-black-women/

9. “15 Surprising Workplace Diversity Statistics (2023)”. (February 17, 2023). Apollo Technical. Retrieved May 31, 2023. https://www.apollotechnical.com/workplace-diversity-statistics/ 

10. “What Upskilling Means for Workforce Diversity”. (May 31, 2023). The Wall Street Journal. Retrieved May 31, 2023. https://partners.wsj.com/salesforce/make-change-elevating-women/understanding-the-upskilling-imperative/

Gilchrist, Karen. (January 1, 2020). “Hiring experts expect demand for this role to surge in 2020 – and it can pay a median of $126,000”. CNBC. Retrieved May 31, 2023. https://www.cnbc.com/2020/01/02/demand-for-diversity-and-inclusion-professionals-set-to-rise-in-2020.html