The changing demand for skills in the UK

We present estimates of changes in skills utilisation and in the returns to skills in the UK for 2002-2016 using new measures of skills derived from a systematic and detailed matching between the US O*NET system and UK [Standard Occupational Classification] SOC. Over the period, there is strongly increasing utilisation of both analytical skills and interpersonal skills, and declining use of physical skills. A decomposition analysis reveals that most of the change in skills utilisation is within occupations rather than between occupations, suggesting that the changes are pervasive throughout employment. The returns to skills are estimated using a standard Mincerian earnings function. We find positive and significantly increasing returns to analytical skills throughout the period. While the returns to interpersonal skills are lower than to analytical skills, they are also increasing over time, and are significant especially post-2010. Finally, the returns to physical skills are significantly negative over the whole period. The results suggest that the UK labour market is strongly increasing its demand for both analytical and interpersonal skills.