Labour Market Imbalances and Adjustments: Applied Forecast Model with RAS Component

Abstract

The paper makes use of conventional manpower and educational planning methods by formulating and applying a forecasting model of labour imbalances in terms of demand and supply for occupational types and educational levels. The aim of public policy is to close the gaps in the absence of labour market interactions between demanders and suppliers.

In a mixed economy, a priori market expectations on the occupational demand side would not match with the market expectations on the educational supply side. In the real world, both types of expectations adjust to each other in processes that clear imbalances. The paper goes beyond the planning methods and simulates labour market adjustments by applying an iterative fitting model (using RAS algorithm) to simulate clearance of the imbalances in the labour market. The RAS method allows the demands and supplies for labour quantities of various types to meet, adjust to each other and end up in the matched mix of occupational types against educational levels. The model is applied and validated to Colombia, Korea, and Pakistan making use of plans and labour market data for the periods 1970-1990. A further extension of the model is applied to Pakistan in the way of investigating in how far the labour market imbalances in terms of quantities are reflected in corresponding gaps in terms of earnings in the periods concerned. The results show consistent tendencies in adjustments along both quantities and earnings.

Keywords: manpower, education forecasts, labour market adjustments, RAS method, human capital, job competition

JEL Classification: C53-4, I26, J21-4, J31, O21