CEDEFOP Session 2: Closer look at the roadmap Potential impacts of Brexit and other macroeconomic issues Production of Skills Supply and Demand Forecasts Alphametrics Eva Alexandri, Cambridge Econometrics Skillsnet Technical Workshop, 24-25 November 2016, Thessaloniki

Outline of the presentation Uncertainty – assumptions and policies Main assumption needed for the forecast Brexit – what does this mean for us? Potential modelling issues E3ME model developments Brief outline of new model version Developments relevant to current framework

Main assumptions in our modelling work Population growth (EUROPOP 2013) GDP growth trends Short-run trends (AMECO) Long-run growth outlook Other policies Retirement age and pensions Benefit schemes Other labour market policies

Brexit and Uncertainty The economy – long-term impacts on UK and EU economy The deal with the EU The deal with other countries The labour market Changes to the movement of people Labour market regulation EU regulation and targets Europe 2020 Climate and energy targets EU regulation and renegotiations – renegotiations of targets. Change in burdens for MS.

Brexit and the labour market forecast Changes to the population forecast? Changes to migration and these will affect population growth Changes to labour market participation patterns? Assumptions about long-term growth Long-term GDP growth forecast Changes to the structure of the economy? Relocation of businesses? New policies and regulations Other issues New regulations not directly related to economic policies (e.g. visas, environmental regulation)?

The E3ME model Global model covering 59 regions and 69 sectors (43 for non-EU regions) Improved treatment of trade – bilateral trade equations Improved treatment of electricity supply Improved treatment of the road transport Improved treatment of employment – now male and female split New visualisation interface

E3ME and Employment by Gender New development relevant to current framework New equation sets looking at employment by gender Econometric equation set for total employment Econometric equation set based on relative shares of each gender in the labour market Model structure incorporates differences in wages we assume wage differentials over the forecast are the same as historical. We do not model wage differentials! But we can adjust wage differentials as a scenario inputs to reflect response to policy. E3ME model assumes that both men and women apply for each job vacancy that arises, according to their relative shares in the labour market (so more women in the labour market suggests that more women will apply for jobs). The choice of an employer may also depend on the expected differences in wage rates between men and women. The econometric equation describing employment demand thus features the relative labour market shares and wage rates as explanatory variables (ideally any differences in productivity would also be captured but the data do not support this). Differences between the wage rates of men and women were also incorporated into the model structure. As gender-specific productivity data are not available we have not estimated a set of econometric equations for wage differentials, but the specifications allows us to vary wage differentials in the pathways described in the next chapter

E3ME and Employment by Gender Ongoing work for looking at gender equality Scenarios we have been looking at: Closure of the gender pay gap Closure of the gender gap in activity rates Closure of the gender gap in STEM graduates More equal sharing of unpaid work (eg. childcare), leading to a higher fertility rate EIGE | European Institute for Gender Equality DG Justice work Not published yet

Summary Uncertainties Suggestions on recent E3ME developments Things you might find useful

Further information Cambridge Econometrics Eva Alexandri, ea@camecon.com Rachel Beaven, rb@camecon.com E3ME model www.e3me.com