Unraveling Human Capital Complexity: Economic Complexity Analysis of Occupations and Skills

TL;DR

This paper analyzes the structure of skills across occupations using economic complexity methods, revealing the central role of general skills and their impact on wage outcomes and reskilling policies.

Contribution

It introduces the Occupational Complexity Index and Skill Complexity Index, providing new insights into the embeddedness of skills in the labor market structure.

Findings

General skills are central in the occupation-skill network.

Cognitive and physical skills contribute equally to specialization.

General skills significantly influence wage effects of specialized skills.

Abstract

This study investigates the structural embeddedness of skills in the division of labor. Drawing on O*NET data covering 120 skills across 872 U.S. occupations, we identify three skill communities: general, cognitive, and physical skills. Compressing the connectivity in the occupation-skill network through the Method of Reflection, we derive the Occupational Complexity Index (OCI) and the Skill Complexity Index (SCI). They unpack the structure of the occupation skill network that general skills are embedded at the core, while cognitive and physical skills diverge in opposite directions. We further assess each skill's contribution to the network's modular and nested structure, finding that cognitive and physical skills contribute equally to specialization but differ in their interactions with general skills. Regression analysis reveals that general skills significantly moderate the wage effects of specialized skills, amplifying the returns to cognitive skills and mitigating the penalties of physical skills. These findings underscore the central function of general skills in transforming individual competencies into labor market value. Reskilling policies aimed at investing in human capital should consider general skills, which are intangible yet play a foundational role in the labor market.