1. Office of Occupational Statistics and Employment Projections: Methods Overview James C. Franklin (202) 691-5709 Franklin.James@bls.gov http://www.bls.gov/emp/home.htm

2. History of the Projections  Began looking at future job prospects more than 50 years ago. Trying to help WWII veterans find work.  Developed medium- to long-term projections for more than 35 years

3. BLS Projections Overview  Projections are developed in four areas:  Labor force  Aggregate economic activity  Industry output and employment  Occupational employment

4. The BLS Projections Publications  Monthly Labor Review: http://www.bls.gov/opub/mlr/2004/02/contents.htm  Occupational Outlook Handbook: http://www.bls.gov/oco/home.htm  Career Guide to Industries: http://www.bls.gov/oco/cg/home.htm  Occupational Outlook Quarterly: http://www.bls.gov/opub/ooq/2005/winter/contents.htm  Occupational Projections and Training Data: http://www.bls.gov/emp/optd/home.htm

5. Who Uses the BLS Projections?  Career counselors and students  Education administrators  Private consulting and research firms  Academic economists in U.S. and abroad  Politicians and the Media  Government agencies

6. Labor Force Aggregate Economy Industry Output Industry Employment Occupational Demand The Projections Process Final Demand “Macro Model”, Demographic, fiscal & monetary policy, foreign economies, energy prices Economic census, annual economic surveys, other data sources BEA benchmark-year input-output tables, BLS time-series estimates Industry output, sector wage rates, technological change Staffing pattern ratio analyses, industry-specific studies, staff expertise Population, labor force, participation rate trends, category constraint

7. The Labor Force - What Is It?  The labor force is comprised of those age 16 and over who:  Are working full- or part-time, or  Are unemployed but are actively seeking work.

8. The Labor Force - What Is Projected? Projections are made for a number of demographic categories:  Sex (Men & Women)  By Race  One race (White, Black, & Asian)  All other groups (multiple racial origin, American Indian and Alaska Native, Native Hawaiian & other Pacific islanders)  By Age (predominantly 5-year age categories) The results are aggregated to yield the projected labor force. In addition, projections are made for these categories:  Ethnicity  Hispanic origin  Other than Hispanic origin  White, non-Hispanic

9. The Labor Force - How is it Projected?  Labor force participation rates are compiled historically:  LFPR = Labor Force / Non-institutional Population  Rates are extrapolated to target year based on past behavior and subject to inter-category constraints.  Census population forecasts obtained by age, sex, race, and ethnicity.  Multiplying participation rate by population yields projected labor force estimate for each category. LFPR * Population = Labor Force

10. Labor Force Aggregate Economy The Projections Process Industry Final Demand “Macro Model”, Demographic, fiscal & monetary policy, foreign economies, energy prices Economic census, annual economic surveys, other data sources Industry Output Industry Employment Occupational Demand BEA benchmark-year input-output tables, BLS time-series estimates Industry output, sector wage rates, technological change Staffing pattern ratio analyses, industry-specific studies, staff expertise Population, labor force, participation rate trends, category constraint

11. Aggregate Economy  Aggregate economic projections are developed using a macroeconomic model.  The macro model is from the Macroeconomic Advisors quarterly model.  543 behavioral & identity relationships  201 exogenous variables  Assumptions are provided to the model.  Model is solved over the forecast period.

12. Aggregate Economy - Assumptions  Demographic  Population  Labor force  Fiscal policy  Federal defense & nondefense spending  Grants-in-aid  Transfer payments  Tax rates  Monetary policy  Federal funds rate  Energy prices  Imported oil price (dollar per barrel)

13. Aggregate Economy - Key Results  Real GDP, level & growth rate  Civilian unemployment rate  Aggregate employment, by household & establishment  Labor productivity growth rate  Inflation (GDP price index)  Federal budget deficit/surplus  Foreign trade deficit/surplus

14. The Aggregate Economy - Key Results  Demand components of GDP—  Personal consumption expenditures  Gross private domestic investment  Nonresidential equipment and software  Nonresidential structures  Residential structures  Change in business inventories  Foreign Trade  Exports of goods and services  Imports of goods and services  Government consumption expenditures and gross investment

15. Labor Force Aggregate Economy The Projections Process Final Demand “Macro Model”, Demographic, fiscal & monetary policy, foreign economies, energy prices Economic census, annual economic surveys, other data sources Industry Output Industry Employment Occupational Demand BEA benchmark-year input-output tables, BLS time-series estimates Industry output, sector wage rates, technological change Staffing pattern ratio analyses, industry-specific studies, staff expertise Population, labor force, participation rate trends, category constraint

16. Outputs Inputs Intermediates- The Input Output (I-O) Table + Commo- dity Output = CIG X-I Value Added (Income) Industry Output + = Final Demand and the Input-Output Model Final Demand

17. FD = C + I + X – M + G C= Personal consumption expenditures I = Investment = Private investment in equipment and software + Nonresidential construction + Residential construction + Change in private inventories X = Exports M = Imports G = Government consumption expenditures and investment

18. Data Sources for Final Demand  The historical matrices are compiled mostly from data published in BEA’s NIPA accounts and I-O systems.  Additional data for the Trade columns is obtained from the Trade Policy Information System (TPIS) database of the Department of Commerce.  The State and Local government columns require additional data from the Bureau of the Census.

19.  To project final demand, an historical time series is developed on a nominal and a real basis.  Independent estimates are made for:  Industry and commodity output  Final demand  Value added  Based on BEA’s benchmark Input-Output tables.  RAS technique applied to create historical series of balanced input-output tables. Developing Historical Tables

20.  Each component is forecasted with independently solved models: PCE – Houthakker-Taylor consumer behavior model PIES – Modified neoclassical model CIPI– Inventory target adjustment model  The chain-weighted aggregation of each major group is constrained to the result from the macro-model. Forecasting Final Demand

21. Y X q = Xe g = Ye where: e = final demand vector q = commodity output g = industry output Use Table Direct Requirements Total Requirements Industry Commodity Make Table Market Shares Total Requirements ä ää ä ä ä Inter-industry Relationships

22. Industry Output  Projected components of final demand are concatenated to form final demand matrix.  Market share and direct requirements tables are projected.  Total requirements tables are created and used to project:  Commodity output  Industry output

23. Labor Force Aggregate Economy The Projections Process Final Demand “Macro Model”, Demographic, fiscal & monetary policy, foreign economies, energy prices Economic census, annual economic surveys, other data sources Industry Output Industry Employment Occupational Demand BEA benchmark-year input-output tables, BLS time-series estimates Industry output, sector wage rates, technological change Staffing pattern ratio analyses, industry-specific studies, staff expertise Population, labor force, participation rate trends, category constraint

24. Industry Employment  Total hours paid are derived for each industry as:  H i = f (output i, real wage i, time)  Average weekly hours for each industry:  AWH i = g (unemployment rate, time)  Industry employment is determined by the identity:  E i = (H i / AWH i ) * (1 / 52)  Employment projections by industry are constrained to the aggregate employment projected in the macroeconomic model.

25. Evaluating Industry Employment  Output growth rate  Labor productivity growth rate Employment = Output / Productivity

26. Labor Force Aggregate Economy The Projections Process Final Demand “Macro Model”, Demographic, fiscal & monetary policy, foreign economies, energy prices Economic census, annual economic surveys, other data sources Industry Output Industry Employment Occupational Demand BEA benchmark-year input-output tables, BLS time-series estimates Industry output, sector wage rates, technological change Staffing pattern ratio analyses, industry-specific studies, staff expertise Population, labor force, participation rate trends, category constraint

27. Occupational Demand – What?  Industry by occupation staffing pattern matrix:  336 4-digit NAICS industries  754 SOC occupations  Distributes wage and salary employment in each industry to all occupations used by that industry to create its output.  A separately determined distribution of self-employed and unpaid family workers by occupation completes the picture of occupational demand in the economy.

28. Occupational Demand – How?  Staffing patterns are assembled from historical data then modified based on various factors:  Technological changes  Changing business practices  Changes in industry activity

29. Occupational Demand – How?  Analysts assign change factor for an occupation in a specific industry.  Staffing patterns are applied to industry employment.  Industry employment for an occupation summed across industries to estimate occupational employment.

30. Replacement Demand  Total job openings made up of:  New jobs created  Replacement needs for those who have  Died  Retired  Moved to another occupation  Replacement needs often outweigh new job creation as a source of job growth.

31. Reviewing the Projections  Initial estimates are reviewed internally by the entire staff, resulting in bottom-up feedback to each stage of the process.  Secondary review involves other program offices within the Bureau:  Current Employment Statistics & Current Population Survey (establishment and household employment estimates)  Productivity & Technology (industry productivity estimates)  Commissioner of BLS (overall policy implications)

32. http://www.bls.gov/emp/home.htm BLS Projections on the Internet