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Evaluating the impact of the labor market conditions index on labor market forecasts

Author

Listed:
  • Connolly Laura

    (The University of Alabama, Department of Economics, Finance, and Legal Studies, Tuscaloosa, AL 35487, United States of America)

  • Sheehan Alice

    (The University of Alabama, Department of Economics, Finance, and Legal Studies, 200 Alston Hall, Box 870224Tuscaloosa, AL 35487, United States of America)

Abstract

This paper examines the usefulness of the labor market conditions index (LMCI) in forecasting key labor market variables, particularly unemployment rates. Using a number of models, we compare out-of-sample forecasts of the unemployment rate with the LMCI to those without the LMCI. We also estimate models of the disaggregated unemployment rates by gender, race, and race by gender, with and without the LMCI, to identify disparities in the predictive power of the LMCI for different subgroups. Last, to determine how the LMCI performs in the presence of labor market shocks, we compare the forecasting performance of the LMCI during recessionary periods and expansionary periods. Our results confirm the potential usefulness of the LMCI as a parsimonious forecasting tool; we find that the LMCI generally improves unemployment forecasts. But, disparities exist in the predictive power of the index across subpopulations and the index forecasts slightly better during recessionary periods than expansionary periods.

Suggested Citation

  • Connolly Laura & Sheehan Alice, 2018. "Evaluating the impact of the labor market conditions index on labor market forecasts," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 22(1), pages 1-17, February.
    • Handle: RePEc:bpj:sndecm:v:22:y:2018:i:1:p:17:n:2
    DOI: 10.1515/snde-2016-0102
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