What is the price of a skill? Revealing the complementary value of skills

Stephany, Fabian and Teutloff, Ole and Lehdonvirta, Vili (2022): What is the price of a skill? Revealing the complementary value of skills.

Abstract

The global workforce is urged to constantly reskill, as technological change favours particular new skills while making others redundant. But which skills are most marketable and have a sustainable demand? We propose a model for skill evaluation that attaches a premium to a skill based on near real-time online labour market data. The model allows us to isolate the economic return of an individual skill measured as a premium on hourly wages. We demonstrate that the value of a specific skill is strongly determined by complementarity - that is with how many other high-value skills a competency can be combined. We introduce the idea of “hub skills” to the field of human capital formation, i.e., high-return skills that can be recombined with many valuable complements. Specifically, we show that the value of a skill is relative, as it depends on the capacities it is combined with. For most skills, their value is highest when used in combination with skills of the same type. In addition, we find that supply and demand and the membership in specific skill communities, such as finance and legal or software and development, determine the value of a skill. We illustrate that AI skills are hub skills, as they can be combined with other high-value skills to generate beneficial complementarities. The value of some of these in-demand skills has increased significantly over the last years. Furthermore, we contrast our skill premia with automation probabilities and find that some skills are very susceptible to automation despite their high economic value. The model and metrics of our work can inform digital re-skilling to reduce labour market mismatches. In cooperation with online platforms and education providers, researchers and policy makers should consider using this blueprint to provide learners with personalised skill recommendations that complement their existing capacities and fit their occupational background.

• Item Type: MPRA Paper
• Language: English
• Keywords: labour; automation; human capital; skills; networks; complementarity: future of work
• Subjects: C - Mathematical and Quantitative Methods > C8 - Data Collection and Data Estimation Methodology ; Computer Programs > C81 - Methodology for Collecting, Estimating, and Organizing Microeconomic Data ; Data Access; J - Labor and Demographic Economics > J0 - General > J01 - Labor Economics: General; J - Labor and Demographic Economics > J2 - Demand and Supply of Labor > J24 - Human Capital ; Skills ; Occupational Choice ; Labor Productivity; J - Labor and Demographic Economics > J4 - Particular Labor Markets > J46 - Informal Labor Markets; O - Economic Development, Innovation, Technological Change, and Growth > O3 - Innovation ; Research and Development ; Technological Change ; Intellectual Property Rights > O33 - Technological Change: Choices and Consequences ; Diffusion Processes

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