Background

This course will introduce participants to concepts, structures and basic assumptions relating to the most prominent macroeconometric models and modelling techniques and their relative strengths and weaknesses in terms of simulation and forecasting of labour market outcomes. The course is policy-oriented.

Reliable estimates of the dynamics of economic variables such as gross domestic products and employment resulting from policy actions are indispensable for evidence-based policy making. The last decades saw a dramatic expansion in the use of modelling tools to quantify the impact of policy changes on macroeconomic variables. This came mainly as a result of improvements in quality and quantity of economic data, increased understanding of the dynamics of economies, improvements in computing power and improvements in macroeconomic models and techniques. 

However, despite such improvements, macroeconomic modelling has remained to be an arduous task, not least when it comes to understanding the dynamics of the labour market. The recent economic and fi nancial crisis has unmistakably shown that prevailing macroeconomic concepts and assumptions suffer from serious weaknesses that must be addressed. Some of these weaknesses have to do with the logical foundations and doctrines of economic models. The weaknesses are especially severe for employment and labour market analysis of such mainstream models as stochastic general equilibrium models where distributional aspects are absent and labour market adjustments are assumed to be costless and instantaneous. These models are criticized for oversimplifying the complexity of economies. Many economists believe that these oversimplifications reflect to a certain extent the doctrinal problems of the mainstream economic models. 

These and other facts are what led such prominent economists as Paul Kruegman, the noble laureate economist, to lament that “[m]ost work in macro-economics in the past 30 years has been useless at best and harmful at worst.” Such sentiments and criticisms have also been loudly echoed by macroeconomic policy managers and practitioners around the globe. In response to such criticisms, in the wake of the economic crisis, economists in leading academic and research institutions have been trying to fix the shortcomings of the mainstream macroeconomic models. New classes of models so-called agentbased models which allow economic behaviours to gradually evolve through interactions of agents are also emerging as powerful competitors to the mainstream models. 

As a leading institution with the mandate to promote decent work, the ILO has, in the wake of the economic crisis, initiated several research initiatives in order to revisit traditional macroeconomic models of labour markets. To this effect, it has undertaken studies on search-based macroeconomic models that aimed at gaining better insights into labour market dynamics and functioning. In particular, it has developed the global economic linkages (GEL) model to analyze the functioning of labour markets and to identify factors that affect employment, wages and the informal sector. 

Prominent academic and research institutions as well as multilateral organizations have already proposed new ideas and techniques for better understanding of economies including labour market dynamics. This course on macro-economics and modelling for labour market analysis, organized jointly by the ILO Employment Policy Department and the ILO International Training Centre and with support from ILO/HRD, establishes a platform for taking stock of emerging developments in macroeconomic analysis of labour market performances and for debate and knowledge sharing on this area. The course will create a platform for a sober analysis of dynamics of employment and labour markets in traditional macroeconomic models and their assumptions.

 

International Training Centre of the ILO

Viale Maestri del Lavoro, 10
10127 Turin - Italy

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