Staff Discussion Notes

The demand and supply of new skills—especially in IT and AI—are reshaping labor markets, impacting wages and hiring. About one in ten job vacancies in advanced economies demands at least one new skill, often appearing first in the United States. The incidence is about half in emerging economies. These skills boost average wages and employment but deepen polarization, mostly benefitting high- and—through higher consumption of services—low-skilled workers, and potentially contributing to the shrinking of the middle class. Vacancies demanding AI skills post higher wages, but the diffusion of such skills is linked to lower employment in occupations with high exposure and low complementarity with AI, posing challenges for the youth. A Skill Imbalance Index reveals wide cross-country differences. Economies facing strong demand should prioritize education and reskilling, while those facing strong supply should foster firms’ absorption through innovation and access to credit.