Foreseeing supply and demand for competence and education until 2025 with a regional CGE model

Åland Islands, a small Finnish island region with its own governmental powers, is rapidly aging together with its neighboring regions in mainland Finland and Sweden. The demographic momentum affects its labor market in various ways. Aging will keep exits from labor market high in the near future while the total size of labor force will barely grow. Rising old-age dependency increases the demand for social and health services which have been mainly provided by the public sector, which in turn strain the public finances. However, positive net migration boosted by favorable employment prospects has helped keep the population growth on a healthy annual rate of 0.5 to 1 percent. The economic development prospects of Åland are analyzed by means of an imperfect competition, recursive-dynamic computable general equilibrium model. The future changes are gauged by means of three scenarios: Base, Growth and Deceleration with varying assumptions regarding the competitive pressures, structure of labor demand, productivity and export demand growth among other things. Even industry-specific assumptions are varied, especially regarding shipping, the main industry of Åland. In addition to industrial dimension, the labor market is divided into two levels by educational attainment. However, additional disaggregation of labor supply and demand is carried out outside the behavioral core of the model: labor demand and supply are disaggregated according to sex, age, field of education and occupational grouping. The contribution of migration and education to the disaggregate labor supply are explicitly modeled with the help of detailed statistics on education and migration flows during the past decade. Hence, a rich picture of recent trends affecting the local labor market can be obtained. In our scenarios, we either assume that recent patterns will prevail or make assumptions on coming changes in the structure of labor demand. We show that exits from the labor market represent a major part of the recruiting need rather than changes in aggregate labor demand. We show that female workers with lower educational attainment (up to secondary level education) meet a decreasing recruitment need, whereas demand for higher educated, predominantly female labor seems to grow substantially. In contrast, recruiting need within occupations with predominantly male workers seems to be slowly decreasing. In the future, it may be necessary for men to be employed within traditionally female-dominated occupations, as well as women may have to make sure to acquire sufficiently high education, since occupations with rather low educational content risk disappearing. These changes require that education provided in Åland is flexible, strategically focused and coordinated with other policy areas, e.g. with industrial policies, housing and migration issues.