The purpose of the labour market forecast is to provide an assessment of the forecasted labour force as well as the number of welfare recipients. The forecast can be used to evaluate policy effects regarding the labour force and welfare recipients.
In the long run, developments in the labour force and welfare recipients are largely determined by demographics such as age, origin and level of education. For example, if the population is composed primarily of older individuals, the expectation is that the number of pensioners would increase.
The forecast also accommodates relevant policy rules that are deterministic of the labour force size. One such policy rule that has a particularly large significance is the incremental increases to retirement age. When the possibility of retiring with pension is postponed, one might expect there to be a considerable change in the labour force composition and size. The labour market forecast accounts for effects like these and will allow for insight into how retirement patterns change as the pension age is increased.
The results of the forecast provide a quantitative measure of the composition of the future Danish labour market with insight into the number of people employed and unemployed as well as how many people will receive disability pension, early retirement pension, and old-age pension.
Application of the forecast
The DREAM model is comprised of a series of base forecasts. One such forecast is the labour forecast which calculates the most likely change in the labour force as well as in the number of welfare recipients. The base forecast for labour provides insight into possible future developments of the number of employed, early retirement pensioners, old-age pensioners etc., as these numbers have a significant impact on government revenue and expenditure.
Additionally, the base forecast can be utilised to evaluate the effects of labour market policy, education behaviour as well as changes to demographics. The subsequent macroeconomic effects can be evaluated by feeding the results of the labour-force forecast into our other economic models.
Long-term economic development can be largely attributed to developments in the labour market. As a result, the long-run forecasts of the labour market have always been a primary objective of the DREAM group. The labour market model has been continuously updated with new and more accurate methods of projection alongside the DREAM model and the other base models. One such update was the development of our education projection which revealed an increasing education level in the population. This result was incorporated into the labour-force forecast and was shown to have a positive effect on the average labour-force participation.
The forecast is divided by demographics such as age, gender, origin, as well as by education level (referred collectively to as background characteristics). The forecasted numbers of persons in each background characteristic group is given by the education forecast.
In the current forecast, the number of persons in each group is further divided by their labour market status. The division is done by using relative frequencies which indicate the proportion of the group in each category of labour market statuses.
In the absence of political reforms, the model forecasts with a baseline assumption that a person with a given set of characteristics will behave the same way as a person with the same characteristics did in prior time periods. Frequencies are thus determined based on historical behavioural patterns, but do correct for expected changes to labour market policies.