Lecture
Alexander Spermann, University of Freiburg, SS 2009
1
Drawbacks of Microsimulation studies Drawbacks of Microsimulation studies
Lecture
Alexander Spermann, University of Freiburg, SS 2009
2
Five practical examples for misinterpretations of microsimulation studies
Lecture
Alexander Spermann, University of Freiburg, SS 2009
1.Minijobs
2.Unemployment benefit II
3.Combination wages
4.Non-conditional basic incomescheme
5.Workfare
Lecture
Alexander Spermann, University of Freiburg, SS 2009
1. Minijobs
• Minijobs: 400 € jobs (without social contributions for employees) may be filled by incumbent workers (additional to a full time job) as well as only-minijobbers.
• Steiner (2004) estimates very low employment effect of minijob reform in Germany.
• However, he ignores the effect on incumbent workers which cannot be estimated due to data constraints.
Lecture
Alexander Spermann, University of Freiburg, SS 2009
• Arntz/Feil/Spermann (2003) estimate very low employment effects for only minijobbers, but highlight that microsimulation studies only catch a very small part of the real world.
• They expect a significant effect on incumbent workers due to theoretical reasoning and empirical pre-reform experience.
1. Minijobs
Lecture
Alexander Spermann, University of Freiburg, SS 2009
• In reality, the effect on incumbent workers was even much higher than expected by AFS 2003.
• Conclusion: A exclusive look on microsimulated employment effects was completely misleading. You better combine theoretical and empirical analysis for a fair assessment of the minijob reform.
1. Minijobs
Lecture
Alexander Spermann, University of Freiburg, SS 2009
2. Unemployment benefit II
•Microsimulation study from Schnabel et. al.2007 reveals low fiscal burden of the 2004reform.
•If the study had been a real ex anteevaluation in 2004, results would have beenmisleading.
•Main reason: Crucial behavorial responsesof people could not be simulated.
Lecture
Alexander Spermann, University of Freiburg, SS 2009
a)Lower barrier to entry for hidden poordue to lower stigma of job center
b)Split up of household to increaseoverall benefit receipt
•However, both behavorial responsesplayed a crucial role and increasedfiscal burden.
2. Unemployment benefit II
Lecture
Alexander Spermann, University of Freiburg, SS 2009
3. Combination wages
•Ifo Institute Munich estimated highemployment effects of the so-called ifo-active public assistance model (ifo institute2007).
•Most of the effect comes from a substantialdrop of basic income level.
•However, labor supply and labor demandelasticities are only defined for infinitesimalchanges rather than substantial changes.
Lecture
Alexander Spermann, University of Freiburg, SS 2009
•Microsimulation runs into a out of sampleprediction problem.
Background: Microsimulation studies useestimated labor supply and labor demandelasticities to evaluate policy reform.
•More reliable is the Sachverständigenrat(2006) study, although the estimated dropof basic income is also very large.
3. Combination wages
Lecture
Alexander Spermann, University of Freiburg, SS 2009
4. Non-conditional basic income scheme
• Proposal of Althaus (2007), Micro-Macro Simulation by ZEW (Council of Economic Advisers, Annual report 2007)
• Static Microsimulation yields positive employment effects but huge fiscal burden associated with Althaus-proposal.
• General equilibrium effects and labor demand effects can be captured by a certain amount but are still rudimentary.
Lecture
Alexander Spermann, University of Freiburg, SS 2009
• Important dynamic issues cannot be simulated, e.g. human capital investment effect, social norm effect.
• Conclusion: Dynamic effects should even worsen the negative fiscal effects, unless people completely change their behavior by such a fundamental reform (which could be in principle).
4. Non-conditional basic income scheme
Lecture
Alexander Spermann, University of Freiburg, SS 2009
5. Workfare
• IZA-Microsimulation on Workfare (Schneider and Bonin 2007) shows strong positive employment effect (+1.4 million additional full time equivalents) and enormous fiscal savings (25 million € each year).
• This reform proposal seems to be the most promising.
Lecture
Alexander Spermann, University of Freiburg, SS 2009
• However, important behavioral responses are neglected
a) Disability insurance effect: People receive the same amount like unemploy- ment benefit II recipients if they claim to be disabled (which will happen due to U.S. and U.K. experiences)
5. Workfare
Lecture
Alexander Spermann, University of Freiburg, SS 2009
b) Fiscal costs of necessary public sector jobs might be higher than expected, especially if people perceive them as opportunity rather than deterrence
c) Displacement effect will play a role in some local labor markets
5. Workfare