Digital Skill Adoption and Employment Dynamics: Evidence from Matched Vacancy-Employer-Employee Data

Abstract

This paper examines the interplay between firms' investments in digital skills and employment dynamics within the Danish labor market. We employ novel digital skill demand measures derived from online job postings using natural language processing techniques. We document a strong positive correlation between demand for digital skills, particularly in data science and AI, and firm productivity. Using dynamic lead-lag models, we estimate a positive relationship between digital skill investments and firm-level employment. This positive association is broad-based across skill levels and demographics, but stronger in certain occupations when specifically considering data science and AI skills. While digitalization drives job creation and productivity gains overall, the workforce impacts of specific technologies are heterogeneous. Our results suggest that digitalization, and particularly data science and AI adoption, may amplify existing labor market disparities across occupations, industries, and regions.