EU-PROGRESS Project MiDLAS 2013-2015 Kick-off Meeting Gijs Dekkers Federal Planning Bureau,

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EU-PROGRESS Project MiDLAS

2013-2015Kick-off Meeting

Gijs DekkersFederal Planning Bureau,

CESO, K U LeuvenAnd CEPS/INSTEAD

Raphaël DesmetFederal Planning Bureau

Recent Developments in Dynamic Microsimulation Modeling for Policy

Support: an application to Belgium

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1. Microsimulation? What microsimulation?2. The interdependence of adequacy and sustainability3. A long-standing collaboration process, cumulating in…4. … LIAM25. The microsimulation model MIDAS : ready to tango6. An application: what is the impact of recent pension

reform on the prospective development of the AROP in Belgium?

7. Conclusions

Recent Developments in Dynamic Microsimulation modeling for policy support

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• The essential function of (dynamic/static) microsimulation models...

...is the imputation of (prospective/alternative) microdata

Microsimulation, what microsimulation?

ni

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A classfication of microsimulation models

Longitudinal ageing

Cross-sectional ageing

Dynamic ageing

Microsimulation models

Static Dynamic

Static ageing

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• Microsimulation is now recognized as a valuable tool in research and policy assessment in various parts of the world

• Scientific research on and with microsimulation is increasingly popularIMA, IJM

• Static ageing is the most popular in both applied and academic research, though dynamic-ageing models are and remain the more popular

• Alignment is an accepted range of methods ensuring complementarity between macro-models and dynamic micro-models

• Multi-country models or frameworksEUROMOD, UNU-WIDER, MIDASGenesis, LIAM2, ModGen

Recent developments in microsimulation

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• May 2005-May 2008: Research project AIM; 6th framework programme of the European Commission. FPB (Belgium), DIW (Germany), ISAE (Italy):

first-generation MIDAS, using LIAM• December 1st, 2009 – November, 30th 2011.

PROGRESS project MiDaLFPB (Belgium), CEPS/INSTEAD, and IGSS, Luxembourg.

The preparation of administrative data in Luxembourg and the development of LIAM2 by the FPB

• January 1st, 2010 – August, 31th 2010. Convention Redis. FPB (Belgium), CEPS/INSTEAD, and IGSS, Luxembourg.

First-generation prospective model for Luxembourg, based on MIDAS_BE and using LIAM

A long-standing collaboration process, cumulating in…

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• Tool for the development of dynamic microsimulation models with dynamic cross-sectional ageing.

• ≠ a microsimulation model (<> Midas)• Simulation framework that allows for comprehensive

modelling and various simulation techniques• Prospective / Retrospective simulation• Work in progress …• You get it for free!

LIAM2

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A simple simulation file in LIAM2

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• Stochastic simulation• Deterministic changes• functions• Modelling on multiple object levels• Links between objects of various levels• Proportional alignment, including hard and soft take

and leave conditions• Alignment over muliple levels (a.k.a Chenard’s

algorithm)• The creation, removal and cloning of objects• Parameters, arrays, macro’s• Importing models in other models• Output handling• Extensive debugging possibilities

But of course, LIAM2 can do much more…

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LIAM2 bundled in Notepadmodel/YAML

Interactive console

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• LIAM2 is currently used for dynamic microsimulation in various countriesBelgium, Hungary, Japan, NZL, Luxembourg, UK, France, the Netherlands

• And various subjectsPensions, health care, taxes and contributions, demographics

Other informationStarting dataset of 300K persons Starting dataset of 2,200K personsTotal runtime (2002 – 2060): 28 minutes 2 seconds18746 individuals/s/period on average top 5 processes:1. output_process: 13m 26s (48%)2. family_allowances: 1m 59s (7%)3. matching_process: 1m 30s (5%)4. welfare: 1m 26s (5%)5. inwork_process_working_t-1: 49s (3%)Peak memory use: 811MB

Total runtime (2002 – 2060): 3 hours 3 minutes 55 seconds18280 individuals/s/period on average top 5 processes:1. output_process: 1hr 22m 2s (45%)2. family_allowances: 13m 1s (7%)3. matching_process: 12m 28s (7%)4. welfare: 9m 36s (5%)5. inwork_process_working_t-1: 4m 40s (3%)Peak memory use: 4.4GB

Table 1: performance of MIDAS_BE using LIAM2 - simulation run from 2002 to 2060.

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• The dynamic microsimulation model MIDASan acronym for ‘Microsimulation for the Development of Adequacy and Sustainability’

- Based on a sample of administrative data

In Belgium, LIAM2 is being used for the development of

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• The dynamic microsimulation model MIDASan acronym for ‘Microsimulation for the Development of Adequacy and Sustainability’

• Starting dataset: individuals, grouped in households(survey, administrative data)

• Individuals pass through all stages of life: birth, marriage, divorce, children, widowhood,death

• Individuals find a job, lose it, become eligible to a social security benefit (or not), build up a pension...

• Individuals enter into retirement and receive a pension benefit based on their previous career

• MIDAS simulates: pensions, unemployment, disability schemes, welfare, gross-net trajectory.

MIDAS: an overview

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A key characteristic of MIDAS is its consistency with the semi-aggregate model MALTESE

‘Channels of consistency’ of MIDAS with MALTESE

1. State alignment2. Monetary alignment3. Joint social hypotheses

MALTESE(macro)

MIDAS(micro)

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The MALTESE macro-budgetary model

Social expenditures or budgetary cost of ageing

Average benefitsNumber of beneficiaries

Macroeconomic projection

Public sub-sectors accounts, public debt

Health care expenditure (acute and long-term)

Population projection by age and gender

Socio-economic breakdown by age (groups) and gender

Social expenditures by branch

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The microsimulation model MIDAS : ready to dance

Alignment of state variables: Procedure to have the model respect or ‘mimic’ exogenous aggregates

while respecting individual probabilities in the occurrence of the event– Behavioral equation determining the probability of the transition– Individuals are ranked depending on the obtained probability (from the

highest to the lowest)– The number of selected individuals reproduces targeted aggregates

– Mortality, fertility, employment, unemployment, self-employment, public sector employment, civil servants, disabled, CELS beneficiaries

Monetary alignment or ‘amount alignment’:Proportional adjustment of first-run values of earnings to match

exogenous macroeconomic productivity growth ratesUprating

Of social security benefits

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EU- PROGRESS Project MIDLAS

Kick-off MeetingLuxembourg, September 23,

2013Raphaël Desmet

Federal Planning Bureau,

Joint work with GIJS DEKKERS, NICOLE FASQUELLE and SASKIA WEEMAES

The social and budgetary impacts of recent social

security reform in Belgium

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1. The pension system in Belgium

2. Recent social security reform in Belgium

3. Budgetary impact of social security reform

4. Social impact of social security reform

5. Conclusions

The social and budgetary impacts of recent social security reform in Belgium

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• Three pillars

• Separate PAYG schemes for employees in the private and public sectors and self-employed.

• Earnings related scheme with redistributive elements (ceiling, minima, maxima, minimum right per career year, assimilated periods, …)

• Means-tested old-age guaranteed minimum income (GRAPA)

• Official retirement age is 65, but retirement is possible from 60 on (62 after reform)

The pension system in Belgium

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• Eligibility conditions for early retirement:

- Age condition gradually increases from 60 to 62 in 2016

- Career condition gradually increases from 35 to 40 years in 2015

• Adaptation of the rules for calculating the benefit

- Some assimilated periods of unemployment and early-retirement are now valued at the minimum right per career year

- The early-retirement penalty for self-employed is reduced and abandoned for those of 63 and older, or who have a long career.

- The pension benefit of civil servants is now based on the last 10 years of the career

Pension reform

Raphaël Desmet

Harmonisation des régimes de retraiteLe renforcement des conditions d’éligibilité concerne les trois régimes. Le plus touché est le régime de pension de la fonction publique. En effet, la condition de carrière passe de 5 ans (de service publique) à 40 ans (de carrière totale).The early-retirement penalty for self-employed is reduced and abandoned for those of 63 and older, or who have a long career.Rapprochement des régimes particuliers de fonctionnaires du régime généralThe pension benefit of all civil servants younger than 50 (1/1/2012) is now based on the last 10 years of the careerTantième: Malus: décote: facteur de réductionActually, the early-retirement penalty for self employed is completely abandoned now, but this decision was not taken when we made the simulations in ths paper.Bonus pension et complément pour âge dans le régime de la fonction publique

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• UnemploymentIncreased digression of unemployment

- 1st period: compensation rate slightly increases- 2nd period: duration limited for cohabiting with

dependants and singles and reduced for cohabiting

- 3rd period: minimum benefit for cohabiting with dependants and singles and lump sum benefit for cohabitingAge condition for seniority supplement:

- 50 to 55 years old, with a career of minimum 20 years

• Conventional Early Leavers’ Scheme (CELS)Career condition increases from 35 to 40 yearsPart-time CELS abandoned

Unemployment/Conventional Early Leavers’ scheme

gd

for those with a career of at least 38 years

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Table 4 Budgetary costs of ageing: base scenario of the Study Committee of Ageing (with reform) and impact of the reforms (difference between projection with and without reform), October 2012% of GDP

Budgetary impacts of social security reform

Components of the budgetary costs

Base scenario (with reforms) Impact of reforms2011 2030 2060 2011-2060 2011-2030 2011-

2060Pensions 9.9 13.6 14.5 4.6 -0.2 -0.1- wage-earners 5.4 7.6 7.8 2.5 -0.2 -0.1- self-employed 0.8 1.0 1.1 0.3 0.0 0.0- civil servants 3.7 5.0 5.6 1.8 -0.1 0.1Health Carea 8.0 9.4 11.0 3.0 0.0 0.0Disability schemes 1.6 1.6 1.5 -0.1 0.0 0.0Unemploymentb 2.0 1.3 1.1 -0.9 -0.1 -0.1CELS/UCA 0.4 0.3 0.3 -0.2 -0.1 -0.1Children benefits 1.6 1.6 1.4 -0.2 0.0 0.0Other social expenditures 1.7 1.7 1.6 -0.1 0.0 0.0Total 25.3 29.5 31.4 6.1 -0.5 -0.3

Source: High Council of Finance, Study Committee of Ageing, Yearly Report 2012a. Public expenditure, inclusive long-term care.b. Inclusive time credit and career breaks

Raphaël Desmet

The next table presents the budgetary cost of ageing, or the variation of the whole social expenses expressed in percent of GDP between two years, firstly for the base scenario which includes the reforms (in the left side of the table). In the base-scenario, the social expenses would rise from 25.3% of GDP in 2011 to 31.4% of GDP in 2060, or a budgetary cost of ageing of 6.1 percentage points of GDP between 2011 and 2060. The costs of pensions and health care would increase by 7.6 percentage points of GDP, but the other expenditures (especially unemployment benefits and children benefits) would decrease by 1.5 percentage points of GDP. (the right side of Table 4). The structural reforms of December 2011 reduce the budgetary cost of ageing by 0.3 percentage point of GDP between 2011 and 2060, evenly distributed between pensions, unemployment and CELS/UCA. Besides the direct impact of the measures themselves, the increased GDP that results from the reform of course decreases the weight of the social expenses in percent of GDP. CELS/UCA (-0.1%): reduction of beneficiariesUnemployment (-0.1%; especially in the long term): lower benefitsPension (-0.2% middle term, -0.1% long term). In the middle term the number of pensioners decreasesIn the long term, these individuals will eventually retire and receive a higher pension benefit. In the systems of employees and self-employed, these effects cancel each other out, but in the civil servants’ scheme, costs will in the long run increase.Cette évaluation de la réforme ne prends pas en compte la réforme du complément pour âge dans la fonction publique. On peut supposer que l’augmentation du coût dû à la réforme dans le régime des fonctionnaires sera réduit lorsque le complément pour âge sera réformé.

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Risk of poverty rate of retirees, in percent

Social Impacts of reform

2002

2004

2006

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25

With reform Without reform

Raphaël Desmet

Différents facteurs expliquent la diminution progressive du risque de pauvreté des pensionnés. Le premier résulte des revalorisations des pensions minimums et de la GRAPA intervenus dans le cou-rant des années 2000 (voir Graphique 10) ainsi que de l’écart positif entre la croissance de ces mi-nima et la croissance des salaires réels sur la présente décennie. En effet, étant donné la faible crois-sance des salaires réels moyens à moyen terme , les pensions minimums des salariés et des indé-pendants ainsi que la GRAPA connaissent, durant les deux premières décennies de ce siècle, une croissance supérieure à celle des salaires. Le second facteur qui explique la baisse du risque de pauvreté des pensionnés jusqu’au début des années 2050 est la participation accrue des femmes au marché du travail. En se constituant de plus longues carrières, les femmes perçoivent des pensions plus élevées. Etant donné que le taux d’emploi des femmes croît jusqu’en 2040, on observe une croissance de la durée de carrière des nouveaux pensionnés jusqu’à cette date. Le remplacement des plus anciens pensionnés par les nouveaux en-trants en pension disposant en moyenne de plus longues carrières engendre une augmentation de la durée moyenne de carrière du stock de pensionnés jusqu’au milieu des années 2050. Il y a donc un effet retard d’une quinzaine d’années de l’impact de la croissance de l’emploi sur la durée de car-rière du stock de pensionnés et donc, également, sur leur risque de pauvreté. Prise en compte des adaptations systématiques au bien-être des allocations socialesImpact de la réforme: - réduction très progressive- conditions renforcées du départ anticipé: carrières plus longues; pensions plus élevées- moins 4 points de pourcentage en 2060

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Male - with reform Female - with reform Male - without reform Female - without reform

Figure 3 : Risk of poverty rate of retirees by gender – Comparison between a scenario with structural reforms and a scenario without structural reforms, in percent

Risk of poverty rate of retirees by gender, in percent


Raphaël Desmet

Impact différencié par sexe- En 2060; -4% (hommes), -5% (femmes)- Impact apparaît immédiatement chez les hommes, plus de 10 ans après l’introduction de la réforme pour les femmes

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-0.02

-0.01

-1.04083408558608E-17

0.00999999999999999

0.02

0.03

Men Women

-0.02

-0.01

-1.04083408558608E-17

0.00999999999999999

0.02

0.03

Men Women

Development of the average net retirement benefits of pensioners, by gender (on the left) and of the average net equivalent income of pensioners, by gender

(on the right), %


Raphaël Desmet

Homogénéité dans la distribution des durées de carrière des hommes entre cohortesParticipation accrue des femmes au marché du travail entraîne une hétérogénéité dans la distribution des durées de carrière des femmes entre cohortesLa différence d’impact entre les hommes et les femmes est diminué suite à la prise en compte de la composition des ménagesA mes yeux, l’avantage d’un modèle de microsimulation est de faire apparaître ce type d’effet qui ne sera pas mis en évidence dans des modèles plus comptable

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2002

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With unemployment reform Without unemployment reform 2002

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With unemployment reform Without unemployment reform

Risk of poverty rate of unemployed computed at 70% of the equivalent income, by gender (men on the left and women on the right)


Raphaël Desmet

To understand this difference in impact, one must recall the differences in reform for various categories of beneficiaries, as well as how men and women are distributed among these categories. There are 3 types of unemployed: those that are living with dependent household members, those that are living with not-dependent household members and single unemployed. Of these three categories, the first and the last are particularly affected by the reform of the unemployment system. The poverty risk of the unemployed with dependent household members and single unemployed therefore increases considerably, whereas the impact of reform is limited for the unemployed living with non-dependent household members. Another reason for this impact is that, almost by definition, the latter category of unemployed benefits from the (unchanged) contributions of the non-dependent household members to the equivalent income of the household, which is not the case for the other two categories of unemployed.Now official statistics from the National Employment Office (Office national de l’emploi ONEM) show that men are overrepresented among the unemployed that live with dependent-household members and among the single unemployed. Women, on the other hand, are overrepresented among the unemployed living with non-dependent household members. As a result, Figure 5 shows that the reform of the unemployment system has a more important impact on male unemployed compared to female unemployed.

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Conclusions1. This paper assesses the sustainability and adequacy

impact of recent social security reform in Belgium

2. Microsimulation model aligned on a macro budgetary model

3. As a result of this reform, the budgetary costs of ageing are reduced by 0.3%-point GDP, evenly distributed between pensions, unemployment and CELS/UCA.

4. The risk of poverty of pensioners decreases as a result of the reform. This effect is faster for men than for women

5. The poverty risk for (male!) unemployed increases considerably

EU-PROGRESS Project MiDLAS 2013-2015 Kick-off Meeting Gijs Dekkers Federal Planning Bureau,

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