Analysing welfare reform in a microsimulation-AGE model: The value of disaggregation

We present a consistent microsimulation-AGE model combining the labour market AGE model PACE-L, data from the German Socio-Economic Panel and a discrete choice labour supply estimation. The model is used to analyse a reform that cuts the social assistance minimum income and lowers the transfer withd...

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Bibliographic Details
Published in:Economic modelling 2008-05, Vol.25 (3), p.422-439
Main Authors: Arntz, Melanie, Boeters, Stefan, Gürtzgen, Nicole, Schubert, Stefanie
Format: Article
Language:English
Subjects:
Applied general equilibrium
Applied general equilibrium models
Discrete working time choice
Econometric models
Economic models
Germany
Income distribution
Labor market
Labor supply
Labour market
Labour market reform
Logit model
Market equilibrium
Microsimulation
Panel data
Reforms
Studies
Wage bargaining
Wage negotiations
Welfare reform
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Summary:We present a consistent microsimulation-AGE model combining the labour market AGE model PACE-L, data from the German Socio-Economic Panel and a discrete choice labour supply estimation. The model is used to analyse a reform that cuts the social assistance minimum income and lowers the transfer withdrawal rate in order to encourage labour force participation at the lower end of the wage distribution. We compare a disaggregated and an aggregated version of the model as well as a partial and a general equilibrium variant. It turns out that both disaggregation and general equilibrium feedback tend to mitigate the labour supply response to the reform proposal. While some labour supply indicators react quite sensitively to the level of aggregation, most macroeconomic variables are considerably more robust.
ISSN:0264-9993
1873-6122
DOI:10.1016/j.econmod.2007.07.001