plan.be Instituto de Ciências Sociais da Universidade de Lisboa Portugal, January 13 th, 2015 Gijs Dekkers Federal Planning Bureau, CESO KU Leuven, and CEPS/INSTEAD (How) can microsimulation add to European policy assessment and coordination? An assessment of needs, opportunities and problems

plan.be Financial and social sustainability: two sides of a coin SPC/ISG and AWG: a clear and recognized need for coordination AWG: prospective indicators of sustainability (S2, mainly) and the benefit ratio. SCP/ISG: current SILC-based indicators of adequacy (financial poverty risk, LWI, multidimensional poverty) and several prospective indicators, based on a forward-looking theoretical replacement ratio. (How) can microsimulation add to European policy assessment and coordination? An assessment of needs, opportunities and problems

plan.be What is microsimulation? Purpose: to impute missing data Alternative realities Prospective scenarios Based on actual or synthetic micro-level datasets (How) can microsimulation add to European policy assessment and coordination? An assessment of needs, opportunities and problems n i

plan.be We require prospective dynamic microsimulation models, because Prospective sustainability assessment should come with prospective (and consistent) adequacy assessment (AROP, LWI) The EU2020 indicators (AROP, LWI) are defined on the household level Key elements in explaining the development of all types of incomes are the uprating regimes, i.e. the linkages between benefits and earnings. Other arguments o Look beyond pre-determined groups: who wins, who loses? o How to model non-linearities and thresholds? (How) can microsimulation add to European policy assessment and coordination? An assessment of needs, opportunities and problems

plan.be A classification of microsimulation models in social sciences Behavioural Dynamic ageing Arithmetic Static ageing Behaviour Include a notion of time

plan.be Transform the weights of a dataset to meet J exogenous marginal distributions describing a (current or projected) population Deville and Särndal (1992), Creedy and Kalb (2006) Packages include GREGWT, CALMAR, Clan97 (SAS), Calibrate, Reweight, Sreweight, Gomulka (Stata); see Dekkers, IJM, forthcoming. “uprate” monetary variables and parameters following a hypothetical evolution Note that the individual characteristics remain unchanged! Recent applications: De Blander, et. al., 2013 Brewer, et al., The Institute for Fiscal Studies model. Majcen, B., et al., The IER model Slovenia Static ageing

plan.be Basic principle: Monte-Carlo Simulation Longitudinal ageing: PTI versus Cross-sectional ageing: PIT Continuous-time versus discrete-time Open versus Closed Dynamic ageing I m,t r n < p x r n ~N(0,1) I m,t+1 I n,t+1 P i =logit- 1 (βX)

plan.be We require these prospective dynamic microsimulation models to be (as) consistent (as possible) with semi- aggregate models The holy grail of modelling may not be achievable, or at a very high price Let us make the “twain meet”. o MI->MA: Simple aggregation in case of nonlinearities or thresholds o MA->MI: MSM’s can use various techniques to incorporate exogenous information o As a fortunate side effect, these techniques can also be used to have the MSM align to AWG tables and hypothesis. (How) can microsimulation add to European policy assessment and coordination? An assessment of needs, opportunities and problems

plan.be It is important for policy assessing institutions that the conclusions based on different models are consistent. But full consistency between the micro- and macro-model may be difficult to achieve. Formal adequacy indicators may be difficult to ‘mimic’ through MSM In most settings, the partners are not equal. This may however change as a result of more administrative data becoming available. (How) can microsimulation add to European policy assessment and coordination? An assessment of needs, opportunities and problems.

plan.be Dynamic microsimulation is being used by many member states to assess the (dynamic) consequences of … indexation policy, fiscal policy, social policy (e.g. pension reform, health policy, education policy) Austerity measures Socio-demographic changes Educational attainment level Immigration and emigration Labour market behaviour Changes in health status … on poverty, redistribution, inequality See, for example, Dekkers, Keegan and O’Donoghue (Asghate 2014) ( How) can microsimulation add to European policy assessment and coordination? An assessment of needs, opportunities and problems

plan.be Static ageing models not very common Dynamic ageing (reduced-form) behavioural ageing models increasingly popular, mostly outside academics Dynamic arithmetic models (“Markov Chain type”) scarce Dynamic ageing models with structural behavioural elements almost non-existent. ( How) can microsimulation add to European policy assessment and coordination? An assessment of needs, opportunities and problems

plan.be Other models in the EU public sector or being used for official tasks SESIM (Ministry of Finance, SE) PENSIM II (Ministry of Work and Pensions, UK) DESTINIE (INSEE, Fr)/TRAJECTOIRE (DREES, FR) DYPES (Instituto de Estudios Fiscales, ES) MOSART (Statistics Norway) SMILE (DREAM, DK) MIDAS_BE (FPB, BE), MIDAS_HU (Hungarian Ministry of Pensions), MIDAS_LU (Liser, LU), T-DYMM (Tesoro, IT) IER (SLO) NEMO (Czech Ministry of Labour and Social Affairs, Cz) ZUS (Social Insurance Institution, POL) ( How) can microsimulation add to European policy assessment and coordination? An assessment of needs, opportunities and problems

plan.be Other favourable developments The research field of microsimulation has reached more maturity over the last decade – thanks mainly to EUROMOD. An increasing number of models are being used in EU member states There is considerably more collaboration and cooperation among modelling institutions in the EU, thanks to the FP and PROGRESS programs Recent free or open source development packages (LIAM2, Mplus, Modgen, Jamsim) further reduce development costs and open possibilities for shared developments. Through their focus remains with EUROMOD, the Commission is increasingly aware of the opportunities that prospective MSM have to offer. ( How) can microsimulation add to European policy assessment and coordination? An assessment of needs, opportunities and problems

plan.be (How) can microsimulation add to European policy assessment and coordination? An assessment of needs, opportunities and problems. Needs: o need for a consistent assessment of sustainability of the social security system and the adequacy of the benefits it provides. o a clear and recognized need for coordination between the SPC/ISG and AWG. Opportunities: o more prospective MSMS become available as development costs decrease and more data becomes available. o alignment techniques Problems: o data issues and availability, consistency problems, funding Conclusions

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