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A revised approach to trend employment projections in long-term scenarios

Author

Listed:
  • Maria Chiara Cavalleri

    (OECD)

  • Yvan Guillemette

    (OECD)

Abstract

The paper describes revisions to the trend employment component of the production function underpinning long-term economic scenarios. Starting with historical age and sex-specific employment rates, a novel approach is developed to correct for cyclical effects using the country-level employment gap while allowing the different sex and age groups to exhibit different sensitivities to the economic cycle. From the resulting cyclically adjusted age/sex-specific employment rates, trend entry and exit rates into/out of employment are computed using the traditional cohort approach. The different employment propensities of existing cohorts are then used to project future employment rates, with entry and exit rates of new cohorts assumed to mimic the most recent ones. To construct scenarios, the model allows a number of policy settings to influence employment rate projections, notably the legal retirement age, tax wedges, family benefits, etc. The sizes of these effects are sourced from recent OECD work on the quantification of structural reforms, and are also specific to sex and age groups. The trend total employment projection is obtained by aggregating age/sex-specific employment rate projections using external demographic projections.

Suggested Citation

  • Maria Chiara Cavalleri & Yvan Guillemette, 2017. "A revised approach to trend employment projections in long-term scenarios," OECD Economics Department Working Papers 1384, OECD Publishing.
    • Handle: RePEc:oec:ecoaaa:1384-en
    DOI: 10.1787/075f0153-en
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    Cited by:

    1. Manuel Bétin & Tim Bulman & Thomas Chalaux & Boris Cournède & Alain de Serres & Claude Giorno & Yvan Guillemette, 2020. "OECD contribution to the evaluation of the ESM financial assistance programme for Greece," Discussion Papers 12, European Stability Mechanism, revised 27 Oct 2021.
    2. Yvan Guillemette & David Turner, 2018. "The Long View: Scenarios for the World Economy to 2060," OECD Economic Policy Papers 22, OECD Publishing.

    More about this item

    Keywords

    cohort model; cyclical adjustment; employment gap; long-term model; long-term scenarios; potential employment; projections; Trend employment;
    All these keywords.

    JEL classification:

    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E27 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Forecasting and Simulation: Models and Applications
    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure

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