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Methodology, Dynamic microsimulation

Research articles · Jun 30, 2012

Simulating histories within dynamic microsimulation models

Jinjing Li, Cathal O’Donoghue

Maastricht University / UNU-MERIT, The Netherlands; Rural Economy and Development Programme, Teagasc, Ireland

Volume 5(1) Spring 2012

Cite as: J. Li, C. O’Donoghue; 2012; Simulating histories within dynamic microsimulation models; International Journal of Microsimulation; 5(1); 52–76. doi: 10.34196/ijm.00067

Abstract

Constructing a base dataset is one of the most important elements in the dynamic microsimulation modelling. However, the access to a long historical panel is usually restricted for many reasons. This paper aims to develop a back simulation method that has the potential to generate a consistent synthetic history panel based on a typical household survey dataset with some complementary statistics. The model uses Living in Ireland (LU) household survey as an example to reconstruct the individual labour market trajectory since 1939. The overall results of the simulated panel have been proven sensible and consistent based on several validation tests. This method opens the possibility to further investigate into several fields of application such as life-cycle income analysis and pension reform evaluation, which typically requires the historical profile of individuals and has traditionally been difficult to perform.

This article contains 16 figures and 14 tables.

Figures

Figure 1. Simulation flowchart for the employment status variables.
Figure 2. Simulated historical in-work ratio for male by age.
Figure 3. Simulated historical in-work ratio for female by age.
Figure 4. Simulated historical in-work ratio for male by cohorts.
Figure 5. Simulated historical in-work ratio for female by cohorts.
Figure 6. Difference between simulated years of work and reported value.
Figure 7. Public sector employment for male.
Figure 8. Simulated public sector employment for female.
Figure 9. Simulated male self-employed ratio by age.
Figure 10. Simulated female self-employed ratio by age.
Figure 11. Occupational pension participation by cohort.
Figure 12. Occupational pension participation by age group.
Figure 13. Average male earnings (£) by cohort.
Figure 14. Average female earnings (£) by cohort.
Figure 15. Average male earnings (£) by age.
Figure 16. Average female earnings (£) by age.

Tables

Table 1. An overview of LII survey.
Variable Mean Standard Deviation
Age 34.15 21.86
Gender 0.50 0.50
Married (%) 38.91% 0.49
Average household size 4.31 1.86
Working population (%) 38.18% 0.49
Public Sector worker (%) 7.81% 0.27
Self-employed (%) 7.73% 0.27
Retired (%) 6.85% 0.25
Unemployed (%) 5.40% 0.23
Percentage of the population with college education 17.46% 0.38
Average reported years of work 13.66 15.20
Total number of household 7,529
Total number of individuals 23,955
Total number of observations 100,639
Table 2. Retrospective variables adjustment in the LII survey (base year).
Sex Variable Description Original Adjusted Observations Adjusted (%)
Mean s.d. Mean s.d.
Male Years in full-time education or training 6.83 2.67 6.67 2.85 2.28%
Years in employment, self-employment or farming 19.38 17.88 19.32 17.88 0.40%
Years in unemployment 1.11 3.24 1.11 3.24 0.14%
Years of illness/disabled 0.39 2.88 0.39 2.88 0.02%
Years spent on home duties 0.21 3.30 0.14 2.63 0.23%
Years in retirement 1.01 3.44 1.00 3.42 0.07%
Female Years in full-time education or training 6.92 2.36 6.77 2.57 2.23%
Years in employment, self-employment or farming 9.17 10.68 9.10 10.64 0.51%
Years in unemployment 0.32 1.58 0.32 1.58 0.09%
Years of illness/disabled 0.27 2.39 0.25 2.26 0.05%
Years spent on home duties 12.76 17.21 12.70 17.14 0.17%
Years in retirement 0.34 2.43 0.33 2.39 0.05%
Total Years in full-time education or training 6.87 2.52 6.72 2.71 2.26%
Years in employment, self-employment or farming 14.29 15.59 14.22 15.58 0.45%
Years in unemployment 0.72 2.58 0.72 2.58 0.11%
Years of illness/disabled 0.33 2.65 0.32 2.59 0.03%
Years spent on home duties 6.48 13.88 6.41 13.77 0.20%
Years in retirement 0.68 3.00 0.67 2.97 0.06%
Table 3. Imputed variables.
Imputed Variables Personal Characteristics used (X)

Years in full-time education or training

Years in employment, self-employment or farming

Years in unemployment

Years of illness/disability

Years spent on home duties

Years in retirement

 Education, age, current employment status, chronic illness, retirement status, number of children in different age groups
Table 4. Components of the employment status equations.
Equations
Variables Included in the Equations In-Work Self-employment Job Sector Occupational Pension Membership Private Pension Membership
Age or Age group Yes Yes Yes Yes Yes
Age Squared Yes Yes Yes
Age 65 or above Yes
Education Yes Yes Yes Yes Yes
Gender Yes Yes Yes Yes Yes
Work Experience Yes
Gave Birth to a Child in the current year Yes Yes Yes
Work in the Public Sector or Not Yes Yes
Job Industry Yes Yes
Job Occupation Yes Yes
Lagged variables Yes Yes Yes Yes Yes
Mean value of residuals Yes Yes Yes Yes Yes
Table 5. Simulated profile without adjustment.
Year 1950 1951 1952 1971 1972 1973 Total Years of Work Rate Simulated Eligibility Actual Eligibility
Individual A ● ○ ● ○ ○ ● 3 33.3% Yes No
Individual B ● ○ ● ● ○ ● 4 66.7% Yes Yes
Individual C ● ● ● ○ ○ ○ 3 0.00% No Yes
Yearly Aggregate 3 1 3 1 0 2 (1/3 correct)
Table 6. Simulated profile with adjustment.
Year 1950 1951 1952 1971 1972 1973 Total Years of Work Rate Simulated Eligibility Actual Eligibility
Individual A ● ● ● ○ ○ ○ 3 0.0% No No
Individual B ● ○ ● ● ○ ● 4 66.7% Yes Yes
Individual C ● ○ ● ○ ○ ● 3 33.3% Yes Yes
Yearly Aggregate 3 1 3 1 0 2 (3/3 correct)
Table 7. Percentage of correctly simulated eligibility.
Pension Type Correctly Simulated Number of Observations*
Contributory State Pension 96.08% 9,343
Occupational Pension 98.25% 10,030
Private Pension 97.36% 1,706 (Year 2000 onwards)

Only those aged 66+ are included for state pension and those aged 65+ for occupational and private pension.

Table 1.
Variables Equations
Years in full-time education or training Years in employment, self-employment or farming
coefficient s.e. coefficient s.e.
College Education 4.22 0.07 −3.43 0.21
Secondary Education 2.17 0.07 −1.66 0.21
Age 0.00 0.02 0.36 0.05
Is Working −1.02 0.13 7.37 0.37
Illness 0.16 0.14 −1.99 0.42
In education −0.89 0.14 2.85 0.41
Unemployed −1.28 0.14 1.03 0.40
Retired −1.05 0.17 4.30 0.51
Number of Children under Age 3 −0.06 0.06 0.16 0.19
Number of Children between Age 4 and 11 −0.10 0.03 0.09 0.10
Number of Children between Age 12 and 15 −0.09 0.04 0.06 0.12
Cohort Dummies Yes Yes Yes Yes
Number of Observations 5,738 5,738
Adjusted R-square 0.48 0.90
Table 2.
Variables Equations
Years in unemployment Years of illness/disabled
coefficient s.e. coefficient s.e.
College Education −1.05 0.11 −0.02 0.10
Secondary Education −0.79 0.11 −0.03 0.10
Age −0.01 0.02 0.05 0.02
Is Working −0.04 0.19 −0.80 0.18
Illness −1.33 0.21 3.78 0.20
In education 0.61 0.21 −0.23 0.20
Unemployed 3.91 0.21 1.17 0.19
Retired 1.01 0.26 −1.46 0.24
Number of Children under Age 3 −0.03 0.10 0.07 0.09
Number of Children between Age 4 and 11 0.06 0.05 −0.04 0.05
Number of Children between Age 12 and 15 0.10 0.06 −0.13 0.06
Cohort Dummies Yes Yes Yes Yes
Number of Observations 5,738 5,738
Adjusted R-square 0.23 0.15
Table 3.
Variables Equations
Years spent on home duties Years in retirement
coefficient s.e. coefficient s.e.
College Education 0.43 0.12 0.00 0.07
Secondary Education 0.40 0.12 −0.01 0.07
Age −0.12 0.03 0.03 0.02
Is Working −2.35 0.21 −0.25 0.12
Illness 0.62 0.24 −0.05 0.13
In education −2.20 0.24 −0.22 0.13
Unemployed −2.28 0.23 −0.20 0.13
Retired −2.42 0.29 5.65 0.16
Number of Children under Age 3 0.20 0.11 −0.01 0.06
Number of Children between Age 4 and 11 −0.06 0.06 −0.03 0.03
Number of Children between Age 12 and 15 0.04 0.07 −0.02 0.04
Cohort Dummies Yes Yes Yes Yes
Number of Observations 5,738 5,738
Adjusted R-square 0.03 0.74
Table 4.
Variables Equations
Years in full-time education or training Years in employment, self-employment or farming
coefficient s.e. coefficient s.e.
College Education 3.47 0.07 −0.54 0.29
Secondary Education 2.01 0.06 −0.06 0.26
Age 0.02 0.01 0.05 0.06
Is Working 0.34 0.06 8.34 0.28
Illness −0.32 0.12 0.06 0.53
In education 0.21 0.11 2.79 0.48
Unemployed 0.96 0.13 4.00 0.55
Retired 0.53 0.13 26.78 0.59
Number of Children under Age 3 −0.07 0.05 1.26 0.23
Number of Children between Age 4 and 11 −0.03 0.03 0.27 0.13
Number of Children between Age 12 and 15 −0.06 0.04 −0.75 0.16
Cohort Dummies Yes Yes Yes Yes
Number of Observations 5,725 5,725
Adjusted R-square 0.50 0.54
Table 5.
Variables Equations
Years in unemployment Years of illness/disabled
coefficient s.e. coefficient s.e.
College Education −0.37 0.06 −0.25 0.09
Secondary Education −0.30 0.05 −0.26 0.08
Age 0.01 0.01 −0.03 0.02
Is Working 0.18 0.06 −0.26 0.09
Illness −0.20 0.11 2.55 0.17
In education 0.16 0.10 −0.10 0.15
Unemployed 1.74 0.12 0.30 0.17
Retired 0.65 0.12 0.27 0.19
Number of Children under Age 3 0.03 0.05 −0.02 0.07
Number of Children between Age 4 and 11 −0.03 0.03 −0.11 0.04
Number of Children between Age 12 and 15 0.00 0.03 −0.24 0.05
Cohort Dummies Yes Yes Yes Yes
Number of Observations 5,725 5,725
Adjusted R-square 0.06 0.05
Table 6.
Variables Equations
Years spent on home duties Years in retirement
coefficient s.e. coefficient s.e.
College Education −1.87 0.34 −0.10 0.07
Secondary Education −1.03 0.30 −0.04 0.06
Age 0.22 0.07 0.03 0.02
Is Working −8.58 0.32 0.01 0.07
Illness −1.65 0.62 0.05 0.13
In education −5.04 0.56 −0.01 0.12
Unemployed −7.31 0.64 −0.02 0.13
Retired −34.35 0.69 8.96 0.14
Number of Children under Age 3 −0.66 0.27 −0.03 0.06
Number of Children between Age 4 and 11 −0.03 0.15 0.03 0.03
Number of Children between Age 12 and 15 0.42 0.18 −0.05 0.04
Cohort Dummies Yes Yes Yes Yes
Number of Observations 5,725 5,725
Adjusted R-square 0.75 0.46
Table 7.
Male Employee Earnings Female Employee Earnings Self-employment Earnings
College Education 0.56 0.81 0.72
(0.03) (0.03) (0.06)
Secondary Education 0.31 0.49 0.31
(0.03) (0.03) (0.06)
Work Experience (Years) 0.09 0.05 0.03
(0.00) (0.00) (0.00)
Work Experience (Squared) 0.00 0.00 0.00
(0.00) (0.00) (0.00)
Years of Unemployment) 0.04 0.01 0.01
(0.00) (0.00) (0.00)
Gender (Male=1) 0.44
(0.06)
Total Number of Observation 13678 10231 5092

(standard errors are reported in the parenthesis).