by Matteo Richiardi and Patryk Bronka, earlier contributions by Ross Richardson, and extensions by Justin van De Ven
We currently provide the following country specific models:
- LABSim model for Italy can be found in main_Italy branch
- LABSim model for the United Kingdom in main_UK branch
Please note that while we share all the code open-source, we are unable to provide data required to run the model, due to access restrictions imposed by the data owners. Please contact us to discuss access to the input data for the model.
See Wiki pages for technical documentation of the model.
The aim of the project is to develop a rich dynamic microsimulation model of individual and household life course events to facilitate research on economic insecurity at the individual and household level and investigate its determinants. The key innovation is the linkage of the dynamic microsimulation with a static tax-benefit model, EUROMOD, which allows ex-post evaluation of the policies put in place in the aftermath of the Great Recession in terms of their impact on economic insecurity, as well as ex-ante evaluation of hypothetical policies aimed at reducing economic insecurity, in Italy and the UK.
The model receives as input a representative sample of the population for each simulated country, called the initial population: in the UK, its drawn from Wave 9 of Understanding Society (the UK Household Longitudinal Study), which is the largest longitudinal household panel study of its kind. In Italy, the initial population is based on the last available wave of the EU-SILC data. The initial population is evolved through time according to a number of processes show in the diagram above and described in more detail in the paragraphs below. These processes can be estimated on the same, or different, dataset as the initial population, but require longitudinal data. To take into account the effects of tax and benefit policies, gross income is transformed to net income by statistically matching best fitting households available in the EUROMOD output data, for whom EUROMOD calculates the effects of a specified, for a given year, tax-benefit regime.
The microsimulation is composed of six different modules: (i) Demography, (ii) Education, (iii) Health, (iv) Household composition, (v) Non-labour income, (vi) Labour supply shown by circles in the diagram above. Each module is in turn composed of different processes or sub-modules, for example ageing process in the demographic module, or a wage setting process in the labour supply module. In each period, agents first go through the ageing process, followed by the population alignment process, which adjusts the population structure to official projections by gender, region, and age. Then, education module determines if individuals should remain in education, or – in case of those who were no longer in education – re-enter education. Students are not at risk of work until the next period and do not enter the labour supply module. Individuals who leave continuous education for the first time have their level of education determined and can become employed. The health module calculates individual’s continuous health score, separately for individuals in continuous education and not in education and evaluates whether the individual is long-term sick or disabled (in which case, he / she is not at risk of work). Next, in the household composition module, children above the age to leave home who still live with their parents can leave home, couples are formed using either a parametric matching procedure based on differential wage and age, or a bi-proportional iterative scaling procedure based on the distribution of matches observed in the data. Females in couples can then give birth to a child, as determined by the fertility process. Fertility is modelled at the individual level, with an option of alignment to the fertility rate implied by the population projections. Finally, individuals enter the labour supply module, in which a) their potential wage is calculated using a Heckman-corrected wage equation, b) the closest matching EUROMOD household (in terms of a number of keys relevant for the tax an benefit policies, such as health, number of children, region, and age) is selected and the net income calculated, c) the utility-maximising choice of number of hours of work supplied by the members of the household is determined using a structural labour supply model, whose parameters were estimated on the EUROMOD input data. That determines household’s actual disposable income.