An Econometric Technique versus Traditional Techniques for Obtaining Regional Employment Multipliers: A Comparative Study

In this paper the authors compare the forecasting ability of an econometric model, which they developed in another paper, with variants of the more traditional technique of the location quotient. The econometric model provides a new method of delineating a region's employment into basic (export) and nonbasic (service) employment. Employment in the Cleveland, Ohio, (SMSA) was divided into these two categories using respectively the econometric model and two variants of the location quotient, one by Tiebout and the other by Thompson. Employment was forecasted within the sample period (1961–66) and outside the period (1967–69). The accuracy of the forecasts was gauged by calculating Theil's inequality coefficients. The results conclusively showed that the econometric method consistently forecasted more accurately than the other techniques, which registered very poor forecasts outside of the sample period.