On the Predictive Power of Layoffs and Vacancies : Can Advanced Notices of Dismissal and Vacancies Help Predict Unemployment? A Study of the Swedish Labor Market Between 1988 and 2010

Sammanfattning:

The purpose of this paper is to investigate the predictive power of the variables advanced notice of dismissal (layoffs) and vacancies for the unemployment rate. Based on the Box Jenkins Methodology, the paper makes use of Granger causality and out-of-sample tests to compare the forecast performance of a naïve reference model and the two models extended to include either lagged values of layoffs or vacancies. It is shown that layoffs make up a significant leading variable, exhibiting particularly strong predictive power at forecast horizons of 2-6 months. It is also shown that the predictive power of vacancies is more ambiguous. Vacancies constitute a valuable explanatory variable for the unemployment rate, but does not possess the same leading, predictive qualities as layoffs.