Why Credential Inflation Is a Public Policy Problem

In February 2026, the Georgetown University Center on Education and the Workforce (CEW) released a report challenging the conventional underemployment narrative. The study found that widely cited estimates of bachelor's degree holder underemployment — some as high as 52 percent — overstated the problem by failing to account for the nuanced range of responsibilities within various occupations. This finding sparked a critical debate in higher education and workforce policy circles: if degree holders are not as underemployed as previously measured, does that validate the degree requirements that generated the credentials? Or does it simply reveal that jobs have been redefined upward to require degrees that the tasks themselves do not inherently demand?

Answering this question is vital, as it determines whether credential inflation — the expansion of degree requirements beyond what job performance actually requires — is a measurement error or a structural failure. Evidence from the Burning Glass Institute, the Federal Reserve Bank of New York, and the Brookings Institution suggests the latter. Credential inflation is not a data anomaly; it is a policy-addressable market failure with measurable costs distributed unevenly across the workforce.

What Is Credential Inflation?

Credential inflation occurs when educational requirements for a role rise faster than the complexity or educational content of the job itself. In the U.S. labor market, this trend takes three primary forms.

First is "degree requirement creep." Jobs historically filled by workers with high school diplomas or some college now frequently carry four-year degree requirements, despite no material change in the necessary skills. Research from the Burning Glass Institute documented this pattern across multiple occupational categories, finding that 43 percent of job postings requiring a bachelor's degree could be effectively performed by workers with alternative credentials or relevant experience. In these cases, the degree serves more as a screening device than a predictor of performance.

The second form is certification proliferation. Industries have added layers of required certifications that often exceed what safety or performance standards necessitate. Occupational licensing now covers more than 25 percent of the workforce — up from just 5 percent in the 1950s — according to Bureau of Labor Statistics data. Many of these requirements appear more reflective of incumbent worker protection than actual consumer safety.

The third form is graduate degree substitution. Roles that previously required a bachelor's degree increasingly demand a master's degree, particularly in management and the public sector. Georgetown CEW's 2024 Graduate Degrees report noted that the graduate degree premium is highly variable. Many degree holders earn wages that do not justify their debt load, signaling that the market is not pricing this added attainment at its true cost.

How It Affects Everyday People

Far from a harmless phenomenon, credential inflation systematically transfers costs from employers to workers. These burdens fall most heavily on those least able to absorb them, reinforcing existing economic barriers.

When an unnecessary degree requirement is instituted, employers eliminate a class of qualified candidates without necessarily improving hiring outcomes. Consequently, workers who cannot afford or access a four-year degree — such as working adults, first-generation students, and those in rural areas — are filtered out before their skills are even evaluated. The National Skills Coalition estimates that more than 70 million U.S. adults have developed relevant skills through alternative routes but are systemically excluded by these arbitrary barriers.

Furthermore, the distributional consequences are stark. Black and Latino workers are overrepresented among those "Skilled Through Alternative Routes" yet underrepresented among bachelor's degree holders due to historical educational inequalities. Credential inflation amplifies these gaps; by increasing the cost of workforce entry while expanding degree mandates, current policy has effectively marginalized the most vulnerable segments of the labor pool.

For employers, the costs are significant but often opaque. Filtering for degrees extends the time to hire and increases compensation requirements, as credentialed candidates command higher wages regardless of whether their degree is utilized. Harvard Business School and Accenture research on "hidden workers" found that automated screening systems eliminate vast numbers of qualified candidates whose resumes lack degrees, even when companies are formally committed to skills-based hiring.

What Are the Implications Going Forward?

Addressing this challenge requires a multi-faceted approach. Three policy levers have demonstrated particular traction in mitigating credential inflation, each operating at a different systemic level.

Occupational licensing reform is a primary lever. Both The Institute for Justice and the Brookings Institution have documented that many licensing requirements do not improve consumer protection, instead serving to reduce labor supply. While more than 30 states have undertaken reform efforts since 2015, politically powerful constituencies in law, healthcare, and real estate have largely resisted these changes.

A second lever is removing degree requirements in the public sector. When states like Maryland, Pennsylvania, and Colorado eliminate degree requirements for state jobs, they send a powerful market signal. While impactful, the shift is often slowed by the gap between high-level policy statements and actual day-to-day hiring practices.

Finally, outcome accountability for credential programs is essential. Requiring programs to demonstrate employment outcomes acts as a check against inflation. States like California, Texas, and Florida have built longitudinal data systems that tie completion to earnings, helping identify which credentials add genuine value versus those that simply inflate entry requirements.

Credential inflation is not a problem that any single intervention will solve. However, with clearly identified mechanisms and documented costs, it must be treated as a public policy priority. Acknowledging that the market often produces more requirements than job performance demands is the first step toward building a more equitable and efficient workforce.

This article is part of the PPV Policy Reviews series. The previous policy analysis, State Apprenticeship Expansion: What Works and What Doesn't, examined where state-level apprenticeship momentum is producing results and where structural barriers limit scale. The next policy analysis, Rethinking Workforce Policy for the AI Era, examines what the current policy infrastructure is not designed to handle and what would need to change.

Have data or policy experience with credential inflation and licensing reform? Reach out.