Mr. John McCarthy:

We use both a bottom-up and a top-down approach. The top-down approach refers to the model that I illustrated earlier called Okun's Law. The actual model tracks the historical data very well. If we get GDP growth, that translates to a reduction in unemployment by a certain amount. The model holds very well over time, but there seems to be a little bit of a breakdown in later years. We also use a bottom-up approach whereby we look at employment growth and labour supply issues. We try to model labour supply. There are three components of labour supply. The first is the natural increase - we know the number of people who are 15, so we know they will enter the 16-64 cohort of the population one year later. We then try to relate our migration to this. Historically there is a strong correlation between migration in Ireland and the Ireland-UK unemployment gap. If that rises, we see outward migration. If it falls, people come home. We then model participation rates as a function of the business cycle, so when GDP is strong, participation rates tend to go up, and vice versa.

Short-term trends will always be a matter of adding judgment to model-type approaches, and that is probably where the difference between ourselves and the ERSI stems from. I do not think we were ever as high as 16%-----