Purpose and design
LEFM has been developed by CE in collaboration with the Institute
for Employment Research at the University of Warwick. It has been commercially
available and continually developed since the early 1990s. It is used
extensively by local agencies and by CE for more specialised consultancy
projects. It is, to our knowledge, the only software package in Europe
tailored to model regional and local economies and designed to conventional
commercial software standards.
LEFM projects economic indicators through an explicit representation of expenditure flows
LEFM’s structure draws heavily on that of MDM, Cambridge Econometrics’ Multi-sectoral Dynamic Model of the UK economy and its regions, and it shares the same underlining software. The key strength of LEFM is that it is designed to project economic indicators for a local area by explaining the output of local industries through an explicit representation of expenditure flows in the area and their links with the world outside the local area. In this it differs from other methods of local economy modelling which typically link local output or employment (by sector) directly to national or regional output or employment. Such methods include shift-share or econometrically estimated equations. While these methods allow a user to derive projections for local output or employment growth from national or regional projections, they offer little scope for introducing an explanation of local performance relative to these higher levels, and they are typically not suitable for analysing the indirect effects on the local economy arising from the opening of a new enterprise or the closure of an existing one.
Figure 1 summarises
the model’s accounting structure, which follows the social
accounting matrix approach adopted in MDM. In most cases, the variables
shown in the diagram are disaggregated (eg by sector for output and
employment).
LEFM is also distinguished from other approaches by its sectoral
detail. It identifies 41 sectors (defined on SIC03), allowing (for
example) electronics to be distinguished from electrical engineering,
and computing from other business services. Detailed disaggregation
by sector is usually valuable because different sectors have different
prospects (eg technological change is driving much faster changes in
electronics and computing than in the other sectors with which they
are commonly combined), because they have different employment characteristics,
and also because it allows local knowledge about specific firms to
be more easily incorporated in the forecast. There is, however, a cost
to working in such detail: most variables in the model have to be disaggregated
by sector (or a similar classification: see below for more details).
LEFM’s Main Inputs and Outputs
The main input assumptions used in LEFM are:
- forecasts for the UK and region in which the local economy lies for selected variables, including
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the components of domestic final expenditure, disaggregated into spending by function as published in the UK National Accounts |
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components of personal incomes |
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gross output, value-added and employment by 41 sectors |
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matrices to convert the components of domestic final expenditure into commodity demand for 41 sectors |
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input-output coefficients and projected changes |
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projected changes in occupational structure and gender |
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forecasts for the local economy |
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population by 5-year age band and gender |
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participation rate by gender for a constant level of unemployment (these are then adjusted by the model in response to actual changes in unemployment) |
Outputs for the local economy (to 2020) include:
- gross output, value-added and employment by sector
- employment by gender and status
- employment by occupation
- components of final expenditure (exports and imports are treated as to/from the local economy)
- personal incomes
- demographic indicators, including unemployment
LEFM contains a number of simulation modules that complement the
core model. A feature of all the modules is the facility of the user
to customise any assumptions that are used so as to more closely approximate
local conditions and to facilitate important sensitivity analysis.
- Impact module
This is designed to consider in great detail the impact of a plant
opening (or closing) on the local economy. It allows assumptions to
be made in great detail as to the precise nature of the local supply
links.
- Replacement demand
Forecasts of total numbers of people that are expected to be employed
in particular occupations in the future can give a misleading impression
of job opportunities and training needs. It ignores the need for employers
to replace employees who may leave through retirement, career moves
or other reasons. The replacement demand module has been designed to
provide indicative estimates of this demand to consider alongside the
more familiar needs from the expansion of the local economy.
The module also has the facility to generate projections of replacement
demand by type of qualification.
- Labour market accounts
This module enables the user to consider the possible scale of reasons
for any imbalance between projections of labour supply and demand.
The main reasons for any imbalance are double-jobbing, non-claimant
unemployment, inward and outward commuting and individuals on training
schemes. The module allows a detailed picture of the dynamics of the
local labour market to be built up and for scenarios to be developed
around possible future developments (eg what are the implications if
the scale of net-commuting remains unchanged in the future?).
- Skills
Future implications for skills can be inferred from the forecasts for occupations and qualifications. LEFM incorporates an explicit skills forecasting module which provides projections for the future demand and importance of particular generic skills in the local economy, including verbal, manual, problem-solving, planning, client communication, computing and autonomy.
LEFM's features and capabilites
Using LEFM
Examples of projects
using LEFM
For further information, including prices, and to order the service,
email:
Mike May-Gillings
Manager, UK Local Economy Services
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