Using one hot encoding, the number of features in a data set increases because it creates a new variable for each level present in categorical variables. For example: let’s say we have a variable ‘color’. The variable has 3 levels namely Red, Blue and Green. One hot encoding ‘color’ variable will generate three new variables as
Color.Green containing 0 and 1 value.
In label encoding, the levels of a categorical variables gets encoded as 0 and 1, so no new variable is created. Label encoding is majorly used for binary variables.