Abstract The thesis is concerned with developing a CGE model for forecasting of employment by industry, occupation and education attainment/qualification, with a major focus on the future optimal skill requirements and education and training sector policy analysis of the Australian economy. The model is named ORANI-ED to reflect the modelling of the supply-side of the labour market, in particular, the Australian post-school education and training sector. The thesis makes a significant contribution to the CGE labour market forecasting methodology. It takes the MONASH labour market forecasting system as a starting point from which additional theories are introduced. The demand for occupation distinguished by qualifications/skills in the MONASH labour market forecasting system is not based on any optimisation behaviour. In contrast, in the ORANI-ED model, the demand for occupations distinguished by qualifications/skills is derived from the optimisation (cost-minimising) behaviour of producers. In the MONASH labour market forecasting system, the supply of the holders of qualifications/skills is exogenous. The exogenous supply of the holders of skills is projected by a companion model. In the ORANI-ED labour market forecasting system, the supply of skills is endogenously determined. The labour supply of skills is based on the optimising behaviour of individuals in two ways: first, in terms of their decision to invest in post-school education as explained by the human capital theory; and, second, in terms of supplying the skills acquired to the labour market. In the ORANI-ED labour market forecasting system, the average wage rates derived from the human capital theory determine the efficient long-run supply of skills. All in all, the ORANI-ED is a complete model with the supply and demand sides of the labour market forming internally consistent components of ORANI-ED. Similar to the MONASH model, the ORANI-ED model is designed for four modes of analysis: historical, forecast, decomposition and policy simulations. The thesis undertakes all four modes of analysis focusing on the Australian labour market and post-school education and training sector. The historical simulation generated an updated database for 2007-08. It also made it possible to explain the observed movements of the employment and average wage rates of the holders of qualifications in terms of the demand-side factors (such as technical changes) and the supply-side factors (such as education and training) in the recent past (2001-02 to 2007-08). The forecast simulation generated baseline forecasts of employment by industry, occupation and education attainment over the forecast period (2007-08 to 2022-23). The decomposition simulation isolated the effects of the exogenous shocks on the baseline forecasts, thus clearly identifying the relative importance of the factors which generated those forecasts. The policy simulation involved steering the economy in the long-run to attain socially optimal allocation of education and training resources by targeting the internal rates of return to investment in education and training to equal a socially optimal benchmark rate. The policy simulation modelled was the Commonwealth Government’s target of achieving 40 percent of total employment comprising bachelor degree or above qualifications by 2022-23. The policy causes an increase in real GDP of 1.7 percent relative to the baseline forecast, with significant changes in the composition of output. The policy achieves large welfare gains as reflected in increased consumption.
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