The Interaction of Household and Labour Market Modules in Microsimulation Models

Abstract

This chapter examines the modelling of household and labour market transitions in dynamic microsimulation models. For this purpose, the demographic module and, to a lesser extent, the labour market module in the Dutch microsimulation model NEDYMAS is described. Next, the interaction of demographic and labour market transitions in this model and some other microsimulation models are indicated. The effect of demographic variables on labour market transitions is generally included in the more recent models. This is in accordance with the developments in labour economics during the last decades that led to a narrowing of the gap between stylized textbook models and reality. The reverse, the implementation of socio-economic variables in the household module, is at the same level as two decades ago, and also here, this partially reflects the developments within this field, to wit, the lack of empirical applications, although theory has been developed more and more. We mainly find empirical applications in this field in the United States. This is reflected in the interactions between the demographic module and the labour market module in American microsimulation models, like DYNASIM. But the application of behavioural equations rests on ad hoc models and simultaneous models have not been used. For the Netherlands, we expect a further inclusion of demographic variables in the labour market module, whereas the inclusion of socio-economic variables in the demographic module is only in its first stage.