A Multi-Stage Framework with Taxonomy-Guided Reasoning for Occupation Classification Using Large Language Models

Automatically annotating job data with standardized occupations from taxonomies, known as occupation classification, is crucial for labor market analysis. However, this task is often hindered by data scarcity and the challenges of manual annotations. While large language models (LLMs) hold promise due to their extensive world knowledge and in-context learning capabilities, their effectiveness depends on their knowledge of occupational taxonomies, which remains unclear. In this study, we assess the ability of LLMs to generate precise taxonomic entities from taxonomy, highlighting their limitations, especially for smaller models. To address these challenges, we propose a multi-stage framework consisting of inference, retrieval, and reranking stages, which integrates taxonomy-guided reasoning examples to enhance performance by aligning outputs with taxonomic knowledge. Evaluations on a large-scale dataset show that our framework not only enhances occupation and skill classification tasks, but also provides a cost-effective alternative to frontier models like GPT-4o, significantly reducing computational costs while maintaining strong performance. This makes it a practical and scalable solution for occupation classification and related tasks across LLMs.