Technical Note
On-model adjustment of incomes during COVID-19 in SOUTHMOD tax-benefit microsimulation models

This note describes methods to derive employment-to-unemployment transition shares across industries during the COVID-19 pandemic and to use these shares in SOUTHMOD tax-benefit microsimulation models to adjust relevant labour market variables.

The first method entails the derivation of industry-specific output shocks from sectoral GDP data, which are used as a proxy for the sectoral shares of workers who transition to unemployment with zero earnings.

The second method involves creating a new policy (lma_cc) in a given country model. In this policy, the transition shares are used to allocate randomly selected workers within industries into unemployment and to adjust their incomes to account for the crisis.

The analysis follows another technical note on the derivation of sectoral GDP shocks and income adjustments. By presenting an approach to adjust labour market variables inside the EUROMOD software, this note offers an alternative to previous research relying on SOUTHMOD models where such adjustments are applied to model input data.