Economics would suggest that it's purely signally: https://en.wikipedia.org/wiki/Signalling_(economics)

The idea that people are hired based on skills is obviously laudable, but _how_ does one verify those skills without extensively testing them?

Whereas deep into your carrier, your professional experience can act as a stronger affirmation of your skill, for that first job degrees seem to be the simplest means of signalling your quality. Its obviously going to exclude would-be great employees, but I guess on a cost-benefit level its understandable given that hiring can be a very intensive process for the employer.