Employers are struggling to find the right talent and in response are prioritizing skills over degree qualifications, as economic and AI pressures change the hiring landscape.

That’s according to State of Skills-Based Hiring 2025 report from TestGorilla, which surveyed 1,084 individuals involved in hiring decisions across the UK and US.

Nearly two-thirds (63%) of employers said it was more difficult to find talent than it was last year, with over half stating the most difficult part of the process was determining if candidates have the right skills – either soft (53%) or technical (51%).

As a result, more organizations are removing degree requirements from the hiring process. In the 2025 report, 53% had dropped this condition – a year-on-year increase of 77%.

Speaking exclusively to UNLEASH, TestGorilla Co-Founder and CEO, Wouter Durville, says the rise in skills testing and is the “headline this year” as employers react to the “pressures of AI, automation, and global economic uncertainty”.

“More organizations are breaking down outdated barriers and focusing on what truly matters: practical skills and real potential,” he says.

Employers are waking up to the reality that great talent comes from all backgrounds, and a degree is no longer the ticket to opportunity it once was. That’s great news for jobseekers who have the skills but not the formal qualifications.”

The hiring landscape is changing and so is the process

Wouter Durville, Co-Founder and CEO, TestGorilla

The decline in degree requirements indicates employers are now focusing on what candidates can actually do, Durville adds.

This includes assessment of practical skills via tests, structured interviews and real-world tasks that “reflect the demands of the job”.

Despite the rise in AI across the workplace, the report found that fewer organizations are hiring for AI skills in 2025 (38%) than the previous year (52%).

TestGorilla’s report also shows a rise in AI use on both sides of hiring – two-thirds (65%) of employers now use AI in hiring, up to 70% in the US and down to 60.5% in the UK.

For those that have implemented AI, the results are clear – 94% said it has improved their hiring process.

Despite this, Durville highlights that AI in hiring is “not proving to be a silver bullet”.

While it does aid in efficiency and administrative tasks, he points out the two-thirds of employers finding it harder to source talent this year.

“This is because hiring isn’t just a numbers game—it’s about truly understanding the whole candidate,” he explains.

“As automation takes over routine tasks, the most successful employers are pivoting to a more holistic approach. They’re using skills tests that measure soft skills like critical thinking and communication and focusing on candidates who can complement, not just keep up with, technology.

“Holistic, multi-method hiring is the key to building future-ready teams. AI can help, but it’s just one piece of the puzzle.”

Soft skills take center stage in the hiring process

The 2025 iteration of the State of Skills-Based Hiring report shows that soft skills are becoming more important to employers, with 69% of organizations specifically testing for these during the hiring process.

Durville highlights that employers are now “doubling down” on factors such as communication, adaptability and critical thinking, and other “qualities that AI can’t replicate.”

He adds that this shift shows that despite the transformation of work brought about by a new wave of automation, “human strengths are becoming more, not less, valuable. It’s a pivot from hiring for technical buzzwords to hiring for lasting impact.”

“We’re also seeing economic pressures come through loud and clear,” he explains.

More employers now cite budget as a major challenge for adopting new hiring tools—up from 26% last year to 40% this year. In a tougher economic climate, every hire matters more, and companies are being forced to do more with less.

As a result, skills- based hiring is on the rise as employers are focused on making “fewer but more strategic hires using predictive methods like skills testing”.

According to the report findings, 82% of employers using skills-first hiring are satisfied with their recent hires, compared to 67% overall.

“Interestingly, even though budget is more of a challenge this year, the commitment to skills-based hiring remains strong: 96% of employers say their budget for skills evaluation will either increase (38%) or stay the same (58%) in the year ahead,” Durville details.

“Altogether, these shifts show that hiring is becoming more pragmatic, more human, and more focused on what really drives business forward.

“Employers want to know what someone can actually do—and that means skills-based, holistic hiring is moving from the margins to the mainstream.”