A new estimation method for employment trend

In this study, we propose the use a refined version of the Kalman filter to estimate the trend component of employment. In a first step, we retrieve the trend of labor force by applying the Kalman filter to a model where the measurement equation is augmented with several structural variables, which we expect to carry useful information on the cycle, as the retirement laws and the population growth. Then, we put our estimate of trend employment and compute the trend of the employment rate. Our investigation has at least two key implications for future studies: first, the development of a more reliable measure of employment trend could be the base of new empirical investigations on the role of shocks in the jobs creation process (which would be better approximated by a measure of employment rate than by the unemployment rate, as we illustrated above). Second, it will give us a second measure of trends in job market, which could be used to enhance our knowledge on the hysteresis process. Finally, this new trend variable will be helpful to evaluate the robustness of the investigations based on the NAIRU. This is a crucial issue since the NAIRU has been criticized on both theoretical and empirical grounds