A London School of Economics study reveals the impact of AI and other new technologies on the demand and wages for nine key skills. Among the results: skills not easily automated, such as collaborative leadership skills, are more prized than the more easily automated skills, such as interpersonal and organizational skills. At the same time, optimal combinations of skills can also increase value.
Emerging technologies from AI to quantum computing and genetic engineering have launched a Fourth Industrial Revolution an era, accelerated by COVID-19, that is transforming the workplace. Through in-depth analyses of 1.3 million job advertisements from 2014 through 2020, a research team from the London School of Economics and Citi Global Data Insights reveal which work skills are gaining or losing in demand, and which are attracting the best wages. (One insight from the study is that increased demand does not always translate into increased wages.)
The research team first developed, through rounds of keyword analyses, a list of nine skills groups that capture the breadth of current skills required. These skills groups are: “collaborative leader”, “interpersonal and organized”, “big data”, “cloud computing”, “programming”, “machine learning”, “research”, “math”, and “analytical”. “Collaborative leader” and “interpersonal and organized” are non-cognitive skills groups, with the remaining groups related to cognitive skills.
With the nine skills groups identified, the team then calculated the demand for such skills through the shares of the advertisements in which the most important keywords for each group appear. For example, the keywords for “collaborative leader” are “strategic”, “leadership”, “influence”, “collaborate”, “creativity”, “negotiation”, and “coaching.” These words appear in approximately 59% of the advertisements reviewed by the team, giving “collaborative leader” a 59% share.
Drilling down statistically by occupation reveals the not-unexpected disparity of demands for skills. To take an extreme example, “collaborative leader” has a 90% share of marketing manager advertisements is, 90% of the advertisements mention “collaborative leader” skills while the same skill has only a 5% share for pharmacy technicians.
The team then incorporates occupation wage statistics at the occupational and geographic regional level from the Bureau of Labor Statistics into its analyses to link demand to wages. The researchers focus on two time periods: 2014-2015 and 2018-2020 Q1. These dates are significant as 2014-2015 represents the start of the Fourth Industrial Revolution, while 2018-2020 Q1 represents a period in which the new technologies have had sufficient to impact job skill requirements.
Using differences in demand and wages between different occupations, the team calculates the impact on wages of a 10 percentage point increase in a skill’s demand. The results highlight continuing changes in the demand and value of job skills. For example:
Automation impacts the value of non-cognitive skills. A 10 percentage point increase in demand for “collaborative leaders” led to an insignificant change in wages in 2014-2015, but an increase in wages of .3% (or $.15/hour) in 2018-2020. In contrast, a 10 percentage point increase in the “interpersonal and organized” share led to a decrease in wages in both time periods (-.36% or -$.16 and -.73% or -$.36 respectively). These results reveal that while both skills are increasing in demand, the value of “collaborative leader” is increasing, while the value of “interpersonal & organized” is decreasing. The reason can be the automatability of the two skills groups: “interpersonal and organized” skills, such as time management, can be more easily automated than the collaboration and leadership skills of “collaborative leader.”
New data science skills are rewarded, while legacy data science skills are punished. A 10 percentage point increase in traditional data science skills such as “big data” and “cloud computing” led to increased wages in the first time period but decreased wages in the second time period. In contrast, “machine learning” a new data science skill that was not even on the radar in 2014-2015 shows a 10 percentage point increase leading to a significant increase in wages (up 5.83% translating to an increase in nearly $3 per hour). The increased value of “machine learning” over older data science skills reflects the new technologies being adopted by companies.
Combining social and cognitive skills leads to higher wages. The research team also looked at how interactions of skills might impact wages. The results show, for example, that “collaborative leader” skills combined with “research” skills led to a significant wage premium in 2018-2020 Q1. That is, occupations that require a combination of social skills (e.g., “collaborative leader”) and cognitive skills (e.g., “research”) are particularly prized today. A complete overview of the research results is available in the full paper link below (see “Further Reading”).
This study offers valuable information for companies navigating the Fourth Industrial Revolution. Understanding more clearly the most valuable skills required today can help guide the hiring and training of new employees, and can also inform future plans to upskill employees. The study can also guide the development of a wage structure that reflects the value of the skills in each job.
The promise of training in the emerging skills covered in the nine skills groups will strengthen a company’s efforts to attract and retain top talent. Such training will also increase a company’s appeal to investors who will note its focus on skills relevant to today’s economy.
Cecily Josten’s profile at London School of Economics
https://www.lse.ac.uk/tii/people/Dr-Cecily-Josten
Grace Lordan’s profile at London School of Economics
https://www.lse.ac.uk/PBS/People/Dr-Grace-Lordan
Helen Krause’s profile at LinkedIn
https://www.linkedin.com/in/helen-krause-cfa-28541a4/?originalSubdomain=uk
Brian Yeung’s profile on LinkedIn
https://www.linkedin.com/in/brianltyeung/
What Skills Pay More? The Changing Demand and Return to Skills for Professional Workers. Cecily Josten, Grace Lordan, Helen Krause, and Brian Yeung. Institute of Labor Economics Discussion Paper Series (January 2024).
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