Estimating long term structural and educational changes of labour demand using CGE model – case of Slovakia

Main goal of the paper is application of augmented recursive-dynamic CGE model to provide long-term forecast of labour demand. Estimation of structural and educational changes in labour demand up to 2025 requires relatively complex approach. Applied CGE model is core part of described exercise. Available datasets for Slovakia allow providing currently most detail estimation of structural changes by 60 sectors. Additionally, employment structure is divided by 5 levels of formal education (instead of more problematic occupation segmentation). Main driver of changes in demand by education in applied model are wage and productivity development. Main inputs to recursive dynamic CGE models beside the SAM matrix are information on indicators of long term macroeconomic. These are derived from applied macroeconomic econometric error-correction model. One of the main challenges was to use combination of LFS and national accounts (ESA) data on structure of employment for better utilization of obtained results. Additional use of LFS information about age and education structure within sectors leads to estimation of expansion, replacement and total demand to every individual sector. Main results of (partially restricted) labour demand are essential part for identifying possible imbalances and shortages on labour market. To quantify the demand for labour of macroeconomic growth will be used computational general equilibrium (CGE) model (see above). Long run growth will be estimated via macroeconomic econometric error correction model. The expansion, replacement and total demand will be compute via cohort stock – flow model. Results and model application are result of long term development of CGE and macroeconomic models within Institute of Economic Research. First estimations indicates the growth of expansion labour demand at level slightly above 100 thousand workers between 2015 and 2025 in Slovakia (4,1 %). The results of expansion labour demand are based on positive expected growth of the Slovak economy. When we consider the replacement demand, the total labour demand is about 900 thousand workers between 2015 and 2025. Intensity of replacement demand will differ in relation to age structure of working population within sectors. Replacement demand represents size of more than one third of current Slovak labour market, which implies possibility of significant structural changes. Slovak economy is split to the 58 sectors where the most of them will increase in output or labour demand. But some of them will decrease in output and labour demand like agriculture. Obtained results indicates, that the highest demand will be for higly educated workers, thus shift toward more knowledge economy. On the other hand, there are significant shortages of skilled secondary workers, which may indicate problems with vocational education system. Results will be further discussed in the paper.