Evaluating the impact of the labor market conditions index on labor market forecasts

This paper examines the usefulness of the labor market conditions index (LMCI) in forecasting key labor market variables, particularly unemployment rates. Using a number of models, we compare out-of-sample forecasts of the unemployment rate with the LMCI to those without the LMCI. We also estimate m...

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Bibliographic Details
Published in:Studies in nonlinear dynamics and econometrics 2018-02, Vol.22 (1)
Main Authors: Connolly, Laura, Sheehan, Alice
Format: Article
Language:English
Subjects:
Economic conditions
Economic forecasting
Employment
Forecasting
Forecasts
Gender
Impact analysis
Indexes
Labor
Labor market
labor market conditions index
Markets
Mathematical models
Power
Race
Subgroups
Unemployment
unemployment rate
Usefulness
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Summary:This paper examines the usefulness of the labor market conditions index (LMCI) in forecasting key labor market variables, particularly unemployment rates. Using a number of models, we compare out-of-sample forecasts of the unemployment rate with the LMCI to those without the LMCI. We also estimate models of the disaggregated unemployment rates by gender, race, and race by gender, with and without the LMCI, to identify disparities in the predictive power of the LMCI for different subgroups. Last, to determine how the LMCI performs in the presence of labor market shocks, we compare the forecasting performance of the LMCI during recessionary periods and expansionary periods. Our results confirm the potential usefulness of the LMCI as a parsimonious forecasting tool; we find that the LMCI generally improves unemployment forecasts. But, disparities exist in the predictive power of the index across subpopulations and the index forecasts slightly better during recessionary periods than expansionary periods.
ISSN:1081-1826
1558-3708
DOI:10.1515/snde-2016-0102