Demand Index and Supply Index Based on Principal Component Analysis: Evidence From <scp>US</scp> Labor Market

ABSTRACT This study presents a new framework for analyzing how employment is influenced by both the demand and supply sides of the labor market. We employ principal component analysis (PCA) to synthesize the two sets of factors into a demand index and a supply index, thus creating a dual‐index model. Each side is represented by five proxies, which are supported and realized by utility and profit maximization theories. A logistic regression model applied to assess their impact on the employment of individuals. The results indicate that both supply and demand indices significantly affect individual employment, with heterogeneous effects across different subpopulations. The female group tends to be influenced by the demand index (a phenomenon most likely caused by workplace bias), while the male group tends to be influenced by the supply index, probably due to their own personal choices. In this way, the dual‐index approach overcomes the limitation of a single‐variable model focusing only on the causality of a single factor. It is also able to fully distinguish the influences of the demand and supply aspects on both the total population and specific subpopulations, making it suitable for providing group‐specific information to policymakers.