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Skill requirements in job advertisements: A comparison of skill-categorization methods based on explanatory power in wage regressions

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  • Ziqiao Ao
  • Gergely Horvath
  • Chunyuan Sheng
  • Yifan Song
  • Yutong Sun

Abstract

In this paper, we compare different methods to extract skill requirements from job advertisements. We consider three top-down methods that are based on expert-created dictionaries of keywords, and a bottom-up method of unsupervised topic modeling, the Latent Dirichlet Allocation (LDA) model. We measure the skill requirements based on these methods using a U.K. dataset of job advertisements that contains over 1 million entries. We estimate the returns of the identified skills using wage regressions. Finally, we compare the different methods by the wage variation they can explain, assuming that better-identified skills will explain a higher fraction of the wage variation in the labor market. We find that the top-down methods perform worse than the LDA model, as they can explain only about 20% of the wage variation, while the LDA model explains about 45% of it.

Suggested Citation

  • Ziqiao Ao & Gergely Horvath & Chunyuan Sheng & Yifan Song & Yutong Sun, 2022. "Skill requirements in job advertisements: A comparison of skill-categorization methods based on explanatory power in wage regressions," Papers 2207.12834, arXiv.org.
    • Handle: RePEc:arx:papers:2207.12834
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    References listed on IDEAS

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    1. David Deming & Lisa B. Kahn, 2018. "Skill Requirements across Firms and Labor Markets: Evidence from Job Postings for Professionals," Journal of Labor Economics, University of Chicago Press, vol. 36(S1), pages 337-369.
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    3. Jyldyz Djumalieva & Antonio Lima & Cath Sleeman, 2018. "Classifying Occupations According to Their Skill Requirements in Job Advertisements," Economic Statistics Centre of Excellence (ESCoE) Discussion Papers ESCoE DP-2018-04, Economic Statistics Centre of Excellence (ESCoE).
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    6. Brad Hershbein & Lisa B. Kahn, 2018. "Do Recessions Accelerate Routine-Biased Technological Change? Evidence from Vacancy Postings," American Economic Review, American Economic Association, vol. 108(7), pages 1737-1772, July.
    7. Ziegler, Lennart, 2021. "Skill Demand and Wages. Evidence from Linked Vacancy Data," IZA Discussion Papers 14511, Institute of Labor Economics (IZA).
    8. David J Deming & Kadeem Noray, 2020. "Earnings Dynamics, Changing Job Skills, and STEM Careers," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 135(4), pages 1965-2005.
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