Forecasting Regional Employment with Shift–Share and ARIMA Modelling

Abstract

The analysis of different economic situations and risk factors is necessary in order to properly define forecasting scenarios. In this paper we focus on the shift-share model as a useful tool in the definition of scenarios, based on the different components contributing to the change of a given economic variable (national, sectoral and competitive effects). Although the most commonly used methodology is based on the "constant shift" and "constant share" hypotheses, additional options can be considered leading to more realistic scenarios. More specifically we propose a dynamic shift-share formulation, allowing time changes in both the sectoral structure and the level of the considered variable. Once this new option has been developed, this approach is applied to define scenarios and forecast the regional employment in Asturias using the information provided by the Spanish Economically Active Population Survey (Encuesta de Población Activa, EPA).