Demand and supply of labor by education towards 2030. Linking demographic and macroeconomic models for Norway

Abstract

Because of globalization and technological progress, most OECD-countries have seen a considerable growth in the demand for labor with higher skills and educational levels the past decades. In many countries, supply has not grown correspondingly. This has resulted in increasing differences either in unemployment or in wages between high and low skilled workers. In Norway, labor supply has followed demand more closely, and unemployment and wages have stayed relatively equal. The past trends in the educational upgrading will probably continue, and further stability in the labor market requires that labor demand and supply matches also in the future. Both for future students, who must decide on education, and the authorities, who must plan the educational capacity, industrial development and welfare reforms etc., projections on demand and supply of labor by education is useful. In Norway, Statistics Norway has produced such projections since 1993, and in this report, we present new projections towards 2030. A central tool in projecting the demand for labor is the macroeconomic model MODAG, which has a core of inputoutput relations to capture the interaction between the different industries. Because demand for labor is projected in each industry, the use of MODAG also leaves room to analyze the effects of inter- and intra-industry changes in demand for labor by education. In a macroeconomic model, labor as an input factor cannot be too heterogeneous with respect to education. MODAG gives projections for demand and supply of labor by education within only five aggregated educational levels/groups. Hence, a module translating demand for labor by industry into demand for labor by education at a detailed level is linked to MODAG.