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BLS projections procedures.

For several decades, the Bureau of Labor Statistics has been preparing 5 to 15 year projections of the U.S. economy. Since the early 1970's, projections have been prepared on a regular 2-year cycle. The projections cover the future size and composition of the labor force, the rate of aggregate economic growth, industrial production, and industrial and occupational employment. The data serve a number of users who need information on future changes in the U.S. economy. The information on future employment opportunities by occupation, for example, is used by counselors, educators, and others helping young persons choose a career, and by officials who plan education and training programs.

Over the years, the procedures used to develop the projections have undergone many changes, as new data series were released and economic and statistical tools improved. Since the late 1970's, the BLS projection methodology has been relatively unchanged and it is that system which is described below.

The BLS projection are developed in a series of five steps each of which is based on a separate model: (1) labor force; (2) aggregate economic performance; (3) industry final demand and total industry production; (4) industry employment; and (5) occupational employment. While each of these five steps is conducted separately, the projection model used in each step depends upon inputs from the earlier step and feeds logically into the next. Although the models used to develop projections for each step in the process are complex, they provide only a framework for detailed analysis of the structure and composition of the economy in the future. As a result of detailed analyses, the models are run and rerun, assumptions are revised, and the results are reviewed until, in the judgment of the BLS staff, projections are achieved for all of the integral parts of the system which are both reasonable and internally consistent.

(1) The labor force projections, the first step in the BLS projections sequence, are determined by the future age, sex, and racial composition of the population and by trends in the labor force participation rates--the percent of a specified group in the population who will be working or seeking work. The population projections, prepared by the U.S. Bureau of the Census, are based on trends in birth rates, death rates, and net migration. With the population projections in hand, BLS analyzes and projects changes in labor force participation rates for 82 age, sex, and race groups.

The labor force participation rate projection for each group is developed by first selecting a trend rate of change based on participation rate behavior during 1962-1984 or for some subperiod which analysis indicates is more appropriate. Second, the rate is modified when the time-series projections for the specific group appears inconsistent with the results of cross-sectional and cohort analyses. This second step, in which many of the selected growth rates are averaged, ensures consistency among the various groups. Finally, the sizes of the anticipated labor force are calculated by applying the labor force participation rates to the population projections. The results are again reviewed for consistency.

(2) Aggregate economic performance--the second model in the BLS projection procedures--is developed by projecting the Gross National Product (GNP), and major categories of demand and income. Because the purpose of the BLS projections is to identify long-term trends, no attempt is made to project cyclical movements. The labor force and population projections are but two of many inputs used in the model. Alternative economic scenarios, usually three, are developed to provide controls for the various categories of demand and employment. The scenarios encompass a range of possible rates of growth. In later stages of the projection process, industry output and employment projections and occupational projections are developed that are consistent with the aggregate economic alternatives.

Wharton Econometrics developed the model used by the Bureau to project aggregate economic trends, in response to a competitive procurement process. The Wharton long-term model is a system of behavioral relationships and identities based on annual data and designed to allow an analyst to explore the determinants of medium- to long-term growth in the U.S. economy. Made up of approximately 2,400 equations, the model is driven by a set of 900 exogenous variables. Under the terms of this agreement, the Bureau uses the Wharton long-term macroeconomic model to develop the BLS projections. BLS analysts determine the assumptions and values for the exogenous variables and equation adjustments in the Wharton model.

The exogenous variables include true policy variables, such as various Federal transfer programs, the response of the monetary authority to growth in the economy, and the level of the armed forces. They also include variables for which other reliable and generally accepted projections are available, such as the population projections developed by the U.S. Bureau of the Census. Finally, the exogenous variables include those items which are too volatile or too politically determined to project. The former group includes such items as economic growth and of the United States and the long-term behavior of the U.S. dollar's exchange value. The latter group includes items such as energy prices.

It shold be noted that the BLS does not rely on the Wharton model alone for projecting possible trends in the future. Rather, the model provides a framework for the preparation of a consistent set of economy-wide projection given a set of exogenous assumptions. BLS analysts then review the aggregate results for reasonableness. The review includes checks on internal consistency, evaluation of continuity with past trends, and comparisons with projections made by others. Although the review tends to focus on such items as GNP, unemployment, and productivity, the model's framework ensures that other important measures of economic performance are not overlooked.

(3) The BLS projection procedure then moves from teh aggregate to the industrial level. For the industry output projections, the U.S. economy is disaggregated into 156 producing sectors that cover the U.S. industrial structure, both the public and private. The framework for this procedure is an input-output model. The initial input-output data used by BLS are prepared by the Bureau of Economic Analysis, U.S. Department of Commerce.

The development of projections of industry output begin with the aggregate demand projections from the Wharton model. In this model, projections are made for 14 categories of consumption, 4 types of investment, 15 end-use categories of foreign trade, and 6 categories of government spending. A further disaggregation of the values from the model is then undertaken: purchases of producers' durable equipment, for example, is estimated for 107 consuming industries.

Furthermore, to develop industry output projections, provision is made to allow for shifts in the industrial makeup of a given demand category. This is accomplished by projecting "bridge tables" relating individual types of demand to producing industries. The bridge table is a percent distribution for each given demand category, such as for a consumption category or for investment, among each of the 156 industries in the BLS input-output model. In projecting changes in these bridge tables, expected changes in technology, consumer tastes or buying patterns, the industrial pattern of exports and imports, the future composition of each industry's business investment, and other structural factors are considered.

The next element in developing industry output projections is the projection of the input-output table which accounts for the changes in the input pattern or the way in which goods or services are produced by each industry. In general, two types of changes in these input patterns are made in developing a future input-output table: (a) those made to the inputs of a specific industry (as, for example, the changes in inputs in the publishing industry); and, (b) those made to the inputs of a specific commodity in all or most industries (as for increased use of business services across a wide spectrum of industries). These changes are based on studies of specific industries conducted internally or by other organizations both within and outside of government. Changing the input patterns in the future input-output table is the procedure used to accommodate the impacts of expected relative price changes, or future changes in technology. The output requirements by industry are developed by multiplying the projected input-output table, by the projected changes in the level, and in the distribution of final demand.

(4) The projected changes in industry employment are computed based on the projected changes in output and other factors. BLS uses a regression model containing an equation for each industry to estimate worker-hours as a function of (a) the industry's output, (b) aggregate capacity utilizaton, (c) the relative price of labor, and (d) a technology variable as approximated by the output/capital ratio. For each industry, worker-hours are converted into jobs using trends in average annual hours for that industry. In order to balance total employment from the aggregate projections with the sum of employment projections, a number of iterations of the process are necessary.

The projections of employment for the 156 producing sectors in the economic growth model are further disaggregated using a time series regression model into 378 industries that, with few exceptions, correspond to three-digit Standard Industrial Classification codes. The 378 resulting projections are reviewed in light of a broad range of economic information. These projections are then used as inputs into the process of projecting occupational employment.

(5) The model used to develop the occupational employment projections is an industry-occupation matrix showing the distribution of employmnet for 378 industries and for more than 550 detailed occupations. Occupation staffing patterns for the industries are based on data collected by State Employment Security Agencies and analyzed by BLS.

Staffing patterns of industries in the base-year industry-occupation matrix are projected to the target year of the projections to account for changes expected to occur because of technological change, shifts in product mix, and other factors. The changes introduced into the input-output model for expected technological change, as an example, may also change future staffing patterns in industries using the new technology. (For example, one would expect greater employment of computer specialists as computer technology spreads across industries.) The projected industry employment data are applied to the projected industry occupational staffing patterns, yielding employment by occupation for each industry. This is aggregated across all industries to yield total occupational employment for the projected year.

Final review

An important element of the projection system is its comprehensive structure. To ensure the internal consistency of this large structure, the BLS projection procedure encompasses detailed review and analysis of the results at each stage for reasonableness and for consistency with the results from other stages of the BLS projections. For example, changes in staffing patterns in the occupational model are closely related to changes in industry productivity and technology projections are reviewed in detail by the BLS Office of Productivity and Technology. In short, the final results reflect innumerable interactions among staff members who focus on particular variables in the model. Because of this review, BLS' projection process converges to an internally consistent set of employment projections across a substantial number of industries and occupations. The continued cross-checking of the assumptions and results makes it difficult to quantify the effects of each change in each variable.

The projection process at the Bureau of Labor Statistics does not end with the development and publication of a set of projections.

Once the target year is reached, BLS evaluates the average of the projections to determine what changes in assumptions or models would have made them more accurate. Knowing the sources of errors helps improve the projection process. It also highlights for users the imprecise nature of making statements about future economic, industrial activity, or employment growth.
COPYRIGHT 1985 U.S. Bureau of Labor Statistics
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Title Annotation:Bureau of Labor Statistics
Publication:Monthly Labor Review
Date:Nov 1, 1985
Previous Article:Occupational employment projections: the 1984-95 outlook.
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