A decomposition approach to labour market forecasting

Recognising human capital's central role in economic development, many countries in the Asia Pacific region have allocated significant resources to the development of their education sectors. However, despite growing policy concern over acute mismatches between qualification supply and qualification demand, few of these countries have national systems for generating and disseminating employment forecasts. In this paper, we outline a forecasting method that is parsimonious in its data requirements, making it suitable for the often data-constrained research environments of the Asia Pacific's developing economies. We apply the method to Vietnam, a rapidly growing transition economy. The method generates detailed labour market projections, while also making transparent the underlying macroeconomic, structural and policy shocks that determine the forecasts. A decomposition of forecast outcomes in terms of the individual contributions of these shocks facilitates transparency in forecasting, by clearly distinguishing and ranking factors responsible for generating each forecast outcome.