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1. Calibration Calibration REES Description x Would you please select a calibration model This data can be obtained when the hou 258 ye you been employed in the current job The second strategy should be used wha employment is need Mast survevs ask How lona have vau Figure 5 Error Message User s Manual Page 3 3 3 0 Getting Started 5 Simulating the Impact of Macro shocks and Poli on Labor markets and Employment PREMPR File Help The World Bank SAD E IDA Working for a World Free of Poverty Calibration Strategy 1 Calibration Strategy 2 Calibration Strategies Description This data can be obtained when the household or labor Force surveys ask questions such as How long have you been employed in the current job The second strategy should be used when no such data is available In this case the average duration of unemployment is need Mast survevs ask How lona have van heen searchina far inh From this auestian it is nassihle ta Figure 6 Select a Calibration Strategy and Press Next User s Manual Page 3 4 3 0 Getting Started 3 2 Calibration Strategy Type 1 Nicaragua Once you press next the following window comes up stieg the Impact of Macro shocks and Polcy om Labor markets and Employment SIMPLE Model World Bank PREMOR Cat ston Par smeten Ma ad x Load Inputs lor loyw apa gun aon for Meow aqua Figure 7 Calibration Str2. 1 e only those actively searching during the period of reference Indonesia Mexico Mexico definition 1 definition 2 All workers in firms with more than 5 employees and self employed workers with more than secondary education All workers in firms of 5 or less employees and self employed workers with less than or equal to secondary education All agricultural workers other than employers Narrow definition of unemployment 1 e only those actively searching during the period of reference Each worker should be assigned to one and only one sector but not all workers or working age individuals belong to one sector or state The model does not take into account those out of the labor force Three of the examples above Nicaragua Indonesia and Mexico definition 1 leave employers with permanent workers outside of the model The rational for doing this 1s that in these countries employers with permanent workers account for less than 596 of all the employed and they are best thought of as firms rather than workers User s Manual Page 1 4 1 0 General Information Once the definition of sectors is chosen and workers are assorted accordingly the model can be calibrated using two different strategies The first strategy 1s to be used when data on the duration of employment is available This data can be obtained when the household or labor force surveys ask for the duration of current job The second strategy sho
3. or 2 and then press next 5 Simulating the Impact of Macro shocks and Policy on Labor markets and Employment PREMPR_ File Help The World Bank IBRD amp IDA Working for a World Free of Poverty Calibration Strategy 1 Calibration Strategy 2 Calibration Strategies Description This data can be obtained when the household or labor Force surveys ask questions such as How long have you been employed in the current peu job The second strategy should be used when no such data is available In this case the average duration of unemployment is need Mast survevs ask How lona have voi heen searchina far a inh From this nuestian it is nassihle to calculate Figure 13 Select calibration Page 3 11 User s Manual 3 0 Getting Started Then on the next window press Load Inputs for Nigaragua first then modify or enter your new data inputs Moce 1 Sirmu ating the Impact of Macro shock and Palcy on Labor markets and Employment MT i Model World Danie PREMOR Dats Calibre ation Par meters 3 6378 raction in informed Econom Mading Function Par emetee m Scale Of Endara varada Workers Irforms Sector wor mms to Loud Inputs for ager auus Run Cair abon for gar agus Figure 14 New Calibration Notice the message in blue stating modify or enter data inputs then press Run Calibration The average time for the calibration is betwe
4. changed to Done and the progress bar will be all green as it shows in the following figure User s Manual Page 3 6 3 0 Getting Started 1 Smulating the Impact cf Macro shocks and Policy on Labor markets and Employment SIMPLE World Bark PREMP Date aun Pu nous tor Mg Figure 9 Calibration Nicaragua Notice that the outcomes of Endogenous variables and Calibration parameters get display on the text fields accordingly with their corresponding labels The second option is to run a new calibration In this case you need to load input for the default values for Nicaragua and modify them then press Run Calibration Press Next to go to the next step 3 3 Run Simulation for Nicaragua Before launching simulation process a calibration should have already run When you press Next on calibration window the following window comes up User s Manual Page 3 7 3 0 Getting Started Simulabon 1 Semutating the Impact of Macro shocks and Policy on Labor markets and Employment SIMPLE Model World Bank PREMPR Data Inputs outcomes of ncogereus Variables Interest r Linempovment rate Duration of forme iver age 1 Workers Infor Sector Duration of an Informa jot Workers Ir Formal Sector Dur sbon of Unemployment aram mm f wkers Agncuture Degree of Market Tightness Bega Powe of Moras Wage n Formal Secta kate Income wie Unem
5. The mean and variance of years of education gt The maximum level of education found in the survey or and the average level of education of the 1 most educated workers The elasticity of labor in the agricultural production function dY dE E Y This elasticity can be estimated using time series data on agricultural output and total employment in agriculture This data may be available from FAO statistics or alternatively if it can be obtained from any study that has estimates for this elasticity gt It is recommended that outliers be eliminated before doing the computation for average earnings Information needed for the simulation steps To simulate the impact of the financial crisis on earnings employment and the labor allocation across sectors we may embody a range of possible scenarios with the directional changes in model parameters User s Manual Page 1 6 1 0 General Information 1 2 Project References Albrecht J Navarro L and Vroman S 2008 The effects of labor market policies in an economy with informal sector Forthcoming Economic Journal Albrecht J Gutierrez C Paci P and Park B 2008 Quantifying the Impact of the Financial Crisis on Employment and Wages in a Multi sector Labor Market Mimeo world Bank Gutierrez C Paci P and Park B 2009 Simulating the impact of the financial crisis on Indonesia s labor market mimeo World Bank Mortensen and Pissarides 1994 Technological Pro
6. Years of Educabon culture on gt Baroarww Power of Workers 7 Average Wace m forma Sector Inc ame wide livere yv highest Threshold Average Income m Irforma conom Rave of lob Destruction 5 55 average inc m 0 539 highest Threshold y of Labor m Agncuture 0 5297 Average Income in the Ec 0 665 Lowest Threshold Level of Education Sis Required for Informa Job Search 7 t ya E Formal Sector Joi 0 6712 JC Forma Sector TFT Mgr ation af Holding a Vaca Rate of Arval of Informa Sector Job Matching Load Inputs for Was agus New Simisbon Figure 16 Calibration processed Once the calibration is done you can click on Next to run simulation User s Manual 3 14 3 0 Getting Started 3 5 Calibration and Simulation Strategy 2 Simidation 1 Simulating the Impact of Macro shocks and Policy on Labor markets and Employment SIMPLE Model World Bank PREMPR Du a Input Outcomes of Endogenous Vanables Unenpiaymert rate Share of Workers e Informal Se Share of Workers In Formal Sector Share of Workers n Agncuture Degree of Market Tightness Power of Worker J 2 Average Wage in Forma Sector Income wide Unemployed Average Income n Informal Sector Highest Threznold Leve of Educaconid d Reoaured ta Average Income in Informar E Rate of Informal Job Dgt uct
7. the financial crisis on Indonesia 1 1 2 The Model The SIMPLE model is a model of search and matching as in Mortenssen and Pissarides 1994 and Pissarides 2000 while incorporating a multi sector nature of labor markets The model follows closely Albrecht et al 2008 and Satchi and temple 2006 At any given time workers can be in any of three states unemployed employed in agriculture employed in the urban informal sector or employed in the urban formal sector Below we will describe the main features of the model Readers who are interested in elements of model further in detail are referred to Albrecht et al 2008 Workers engaged in agricultural production receive the average product of labor They can migrate to urban area and search for employment opportunities at a cost Upon migration they start off as unemployed The urban sector is composed of a high productivity wage sector and a low productivity sector In the low productivity sector workers receive a fixed income regardless of their skills Unemployed workers can search for either formal jobs informal jobs or both Informal employment opportunities arrive at a given exogenous rate Formal rate is however determined through the matching function that depends on the ratio of available vacancies and unemployed workers or the measure of market tightness Workers differ in skills and skills determine the maximum level of productivity in formal jobs high skill workers can pro
8. the following steps A Copy files ul 2 Hane yon C drive TEE Open the SIMPLE World Bank T 4 Click start in your computer Start Search on the start search type cmd B Setting the path 5 Onthe command line window type the following SET PATH C Program Files MATLAB MATLAB Compiler Runtime v710 runtime win32 As follows EN C Windows system32 cmd exe Microsoft Windows Version 6 0 6001 Copyright lt c gt 2886 Microsoft Corporation All rights reserved C Users Anasse gt SET PATH C Program Files MATLABNMATLAB Compiler Runtime v716 ru nt ime win32 Setting the path can be done alternatively as follows Alternately for Windows add the following pathname C Program Files MATLAB MATLAB Compiler Runtime v7 1 0 runtime win32 to the PATH environment variable by doing the following 1 Select the My Computer icon on your desktop 2 Right click the icon and select Properties from the menu 3 Select the Advanced tab 4 Click Environment Variables User s Manual Page 1 1 5 on variable path add C Program Files MATLAB MATLAB Compiler Runtime v7 1 0 runtime win32 NOTE On Windows the environment variable syntax utilizes backslashes delimited by semi colons C Creating a short cut on your desktop Open d SIMPLE World Bank your C drive SIMPLE Drag the file LEE into your desktop File type short cut The installation and configuration is complet
9. Molding Vacancy Rate of Aerial of Informal Sector Job Opp 0 363 R 17 Matching EFhoences Load Inputs for agua New Sendation Dun Se dabon for Moar agua Dun Sensation Figure 11 Launching Simulation Press OK The simulation results for Nicaragua s case will be displayed User s Manual Page 3 9 mulating the Impact af Mani Data Inputs Interest rate Aver y Erz Y Han Edu me wide Lieempelevyed Average Income mn informa Economy ye o norma CAIDA DARIO L Labor m Agno y ation l a Holding Va Rate of of Informa Sector Matching hocks und or Labor market income m i m Employment New Sim stcon SIMI E Model Workd Bank PREMPR Run Sem tur Nigar squs Aui comes of Endogenous Variables Dur shion of a Formal Job Dus ation of an informal Job Dur vn _ _ Degree of ste XAO highest Threshold Level of Educ Highest Threshold Lowest Threshold Level of Educ sionis S W Ma I Formal 54 Run Figure 12 Simulation for Nicaragua Completed gured 3 0 Getting Started Level of Reaured for 4 Formal Job ror Informa Job Search User s Manual Page 3 10 3 0 Getting Started 3 4 Run New Calibration On the main menu you can select calibration strategy
10. The World Bank BHD amp IDA Working for a World Free of Poverty USER S MANUAL Simulating the Impact of Macro Shocks Policy on Labor markets and Employment SIMPLE Model World Bank PREMPR The World Bank Poverty Reduction Group July 2009 Revision Sheet Revision Sheet Release No Date Revision Description 7 8 09 User s Manual Reviewed by project manager User s Manual Pagei User s Manual Authorization Memorandum We fully accept the changes as needed improvements and authorize initiation of work to proceed Based on our authority and judgment the continued operation of this system is authorized Pierella Paci DATE Project Leader Catalina Gutierrez DATE Project Supervisor Anasse Bari DATE Technical Support Beom Park DATE Technical Support User s Manual Page ii USER S MANUAL TABLE OF CONTENTS Page 1 0 GENERAL INFORMATION ss 1 1 ey HEINE I deem IC EM UNE 1 1 Iob ACK OLOUNG a atado 1 2 IN Teenies 1 4 O 1 2 Project Reterences ao 1 7 LS Vo PE 1 7 Eu esse 1 7 A 16 el ee he ee Ve 1 7 20 SISTENESUMMARY 2 1 2 1 System Installation and u t UN 2 1 2 9 GELINGSTARTED
11. ategy 1 Once in the Calibration window Press Load Inputs for Nicaragua sample Inputs will be displayed on the fields The purpose is to get an idea of possible values for inputs Nicaragua s sample inputs were validated for calibration strategy 1 It can be used as a reference Two options you can choose either you run the calibration for Nigragua or make a new Calibration Option 1 Press Run Calibration for Nicaragua this will run the calibration for Nicaragua based on the data input displayed Option 2 Press New Calibration in this case you need to enter new inputs or modify Nicaragua inputs Once you enter data inputs press Run Calibration User s Manual Page 3 5 3 0 Getting Started Once you click Run Calibration for Nicaragua the following window appears che Wirit Bank Lr don Pur ameter Kver sae Frome m Shon atra Load Inputs for Megarsgua Ran Calor sion For Mos agus san Figure 8 Running Calibration Press OK when the calibration window pops up Notice the window s areas circulated in red Running Label that the label that show the process status It will turn to Done when the process has finished System Status Messages in blue displays messages on the estimated time for the process and the process status Progress Bar In green Note that the when the calibration is done a message will be displayed The Running label will be
12. bon fun aniston for Noa agus Figure 17 Launching Simulation The average time for simulation 1s 2min A notification message will be displayed when it 1s completed User s Manual 3 14 3 0 Getting Started ihocks and on Labor markets and Em foyer SIMPLE Model Workd Bark PREMPR 1 the rp t of Outcomes of Endogenous Variables Data Inputs Dani mem rate z in forme Sector in Formal Sacto Was n rculture N noe Forma Sector Bm garry Pow Highest Threshold Level of Equcston seis Requred to Mgr Inc ome wide Une ved ver age income in informal Sect E d hor s Forms Job 0064437 ECONO Highest Threshold Level of Education Average Income D Irforma Ec rre ob De 5 verage income in Agr culis 0 519 Labor 0 5287 Average Income in the Economy 0 66525 Lowest Threshold Level of Education Sis Requred for Informa Job Search Sector Tob Opportunities 76712 esi of Informal Sector Job C Matching Efficiency Load Inputs for aar agus New Sim ston Run for Nigar squs Figure 18 Simulation Completed 3 6 Run New Calibration Strategy 2 This process is the same case 3 2 3 Run New Calibration Strategy 1 except that the sample values are for Indonesia in type 2 rather than Nicaragua 3 14 User s Manual 3 0 Getting Started 3 6 Caveats and Exceptions The process for both calibration and simulation will terminate in case it exceeds 9min
13. duce more outputs Firms post vacancies at a cost and unemployed workers look for jobs but there are frictions in the labor market in that it takes time for workers to find jobs and for firms to fill vacancies Once workers and firms meet they bargain on a wage Economy can face two types of shocks idiosyncratic shocks that hit on individual worker firm job match and sector specific shocks that affect all the jobs in a given sector Figure 1 below illustrates the structure of the labor market User s Manual Page 1 2 1 0 General Information Wages are mds Workers receive Positive returns to skills fixed eaminos no returns to skills a 9 i a um High Productivity jobs l Low Productivity Jobs URBAN Agriculture Workers are paid N average product of labor Bu u Figure 1 Structure of the Labor Market The labor market in the model is segmented by skills where low skill workers are located in agriculture and high skill ones in the urban sector In the urban sector relatively low skill workers search only for informal jobs while workers within middle range of skill can search for both formal and informal opportunities Finally relatively high skill workers search only for formal jobs The size of each sector and the number of workers searching in each market is determined by the exogenous parameters of the model the distribution of skills the
14. ed User s Manual Page 1 1 3 0 GETTING STARTED User s Manual Page 1 1 3 0 Getting Started 3 0 GETTING STARTED This section will provide a general walkthrough of the system from initial through exit SIMPLE To get started double click on Model Wor Then the following window appears Simulating the Impact of Macro shocks and Poli y on Labor markets and Employment PREMPR File Help The World Bank IBRD amp IDA Working for a World Free of Poverty Calibration Strategy 1 Calibration Strategy 2 Calibration Strategies Description This data can be obtained when the household or labor Force surveys ask questions such as How long have you been employed in the current job The second strategy should be used when no such data is available In this case the average duration of unemployment is need Mast survevs ask How lona have van heen searchina far inh From this auestion it is nassihle to calculate Figure 2 Main System Window If you click on the Help information about the system will be displayed as follow User s Manual Page 3 1 3 0 Getting Started Simulating the Impact of Macro shocks and Policy on Labor markets and Employment PREMPR File Help About Calibration Strategy 1 Calibration Strategy 2 Calibration Strategies Description This data can be obtained when the household or labor force surveys ask questions such as How long have you been employed i
15. en 2minl6sec However based on your initial values this running time might change There is a time out on process in case its response time exceeded 9min User s Manual Page 3 12 3 0 Getting Started JME Mooe Word Bari PREMPH 2 znoci and Policy on Labor markets amd Emoloyreerct Outcomes of Endogenous Vane irterest ree Q recwmiovirert rate gabon of Formal b Average Years of Education ur abon of an informa Job Variance of Years of Education Dur sin of Unemployment kan mum Years of Education 3 gt IL E t A ca 4 i v Degree 1 rw u Dargareng Power of Workers gue icome me Unenpioved Threshold Level of Education F eque ed Auer age Income in informa Econo Rate of informal Job Detruction Theeshold Li Threshold Les 363 3 6 Lomas Inputs for Naparagua Dun Sem dabon far Moar agua Figure 15 lunching Calibration The calibration is being processed You need wait until you get a blue message stating that the calibration is finished The status bar will show the progress as well See next figure User s Manual Page 3 13 3 0 Getting Started immulat ng the Impact of Macro shocks and Policy o Labor markets and Employment SIMPLE Model World Bank PREMPR Data Inputs Outcomes of Endogenous Variabies ment rate 0 112 Dur son of a Formal Job f Workers in Informal Sector 0 21 Dus ation of an informal Job Educ i Form Sector 3 Dur ation of Unemployment Maximum
16. gress Job Creation and Job Destruction Review of Economic Dynamics 1 733 753 Pissarides C 2000 Equilibrium Unemployment Theory Cambridge MIT Press Satchi M and Temple J 2006 Growth and labour markets in developing countries Discussion Paper Series No 5515 CEPR 1 3 Points of Contact 1 3 1 Information The software is a property of the World Bank Group Poverty Reduction Division and was developed and engineering internally within the division The project was managed by Dr Pierella Paci Lead Economist and Dr Catalina Gutierrez E T Consultant 1 4 3 Help Desk Help Desk Assistance Mr Anasse Bari Phone 202 436 5115 Email Address bari gwu edu abari worldbank org Mr Beom Park Email Address beom sock park gmail com User s Manual Page 1 7 2 0 System Summary 2 0 SYSTEM SUMMARY User s Manual 2 0 SYSTEM SUMMARY The purpose of this software is simulating the impact of Macro shocks and policy on labor markets and employment The software provides options for two different calibrations strategies In calibration strategy type 1 the data can be obtained when the household or labor forces survey asks questions such as how long have you been employed in the current job Calibration strategy type 2 should be used when no much data 15 available In this case the average duration of unemployment is needed 1 1 System Installation and Configuration To install the system please follow
17. iicet ea __ 3 1 Sel SOV Stemi 3 3 3 2 Calibration Strateey Type l Nigarasda un a rn Wein a da 3 7 3 3 Simulation Strategy Type 1 Nigaragua 34 Run New Eahbraton Strategy Usina ee taut laces 3 11 3 5 Run New Simulation Strategy 1 5 5 Calibration and Simulation Stratesy Li en a 3 15 3 0 ee te das 3 17 User s Manual 1 0 GENERAL INFORMATION User s Manual 1 0 General Information 1 0 GENERAL INFORMATION 1 1 System Overview 1 1 1 Background Employment and earnings are widely recognized as important channels through which economic shocks and policy reforms affect economic growth and household welfare However when simulating the potential impact of their occurrence most models take very simplified view of the labor market under the common underlying assumption of a single perfectly competitive labor market Empirical evidence suggests that this hypothesis reflects poorly the complexity of the labor market in developing countries Rather it may be better understood under a multi sector framework where 1 a modern or productive sector coexists with a traditional low paying urban sector and a subsistence agricultural sector and 41 most of the working population is employed in the last two sectors either as a result of choice or as a result of exclusion In this context movements of workers from the low productivity secto
18. n the current job The second strategy should be used when no such data is available In this case the average duration of unemployment is need Mast survevs ask How lona have vou heen searchina For a inh From this question it is nassihle calculate Figure 3 System Overview About Simulating the Impact of Macro shocks and Policy on Labor markets and Employment PREMPR 1 0 Simulating the Impact of Macro shocks and Policy on Labor markets and Employment PREMPR Simulating the Impact of Macro shocks and Policy on Labor markets and Employment SIMPLE Model World Bank PREMPR Project Managed by PREMPR James Albrecht Georgetown University Pierella Paci World Bank Catalina Gutierrez World Bank Technical Support and Development by B Park World Bank and Anasse Bari World Bank Product Version 1 0 Vendor The World Bank PREMPR Homepage http www worldbank org Figure 4 About system window User s Manual Page 3 2 3 0 Getting Started 3 1 System Menu As was mentioned in earlier sections there are two main navigation paths to function noted on the screen Calibration strategy 1 and Calibration strategy 2 The end user must check a calibration strategy before moving to the next system window 4 Simulating the Impact of Macro shocks and Policy on Labor markets and Employment PREMPR __ E File Help The World Bank BHD amp IDA Working for a World Free of Poverty
19. ns are not important either because they are set at non binding levels or because of low compliance and enforcement By the end of 2009 we hope to release the second version which will be suited for more regulated economies additionally it will be designed to simulate the impact of policy reforms on earnings and employment in any economy Below we describe briefly the main features of the model and how to use the SIMPLE software Before getting into the detail it 1s important to highlight that the model is specifically designed User s Manual Page 1 1 1 0 General Information to address issues in labor market and results from any particular simulation should be interpreted with the given assumptions in the model Reference Albrecht et al 2008 Gutierrez et al 2009 We recommend users to perform robustness checks for any simulation That is from the baseline simulation it is important to understand how much the results change if the calibrated parameters change slightly For example if one particular simulation shows that a 1 reduction in total factor productivity in the formal sector generates a loss of 10 in formal employment we recommend users to check how much this result changes if for example income from informal employment is reduced by x or if the rate of arrival of shocks to the economy is 1 5 higher or lower than the calibrated value Gutierrez et al 2009 may be an example of the use of model to understand the impact of
20. on Es Average Income In Agxutue Highest Thresnold Leve of EdacaconiSi Ss Requrec tor a Forma Job Output Elastxity of Labor n Agnculture 7 6287 Aver ape rome n the Econo Lowest Threshold Level of Education Sd for Informal Job 54 SN Rate of Armes F Foma Sector Job Opporunbe Jr Mural TFS 1 wu for Now aque Nev Sara date Fir Samulation for agua Figure 16 Simulation The simulation window will display the data inputs entered at the calibration Press New simulation then Run simulation User s Manual 3 14 3 0 Getting Started Data Inputs Interest yment rate Dur sbon of a Forms Joo Average Years of _ Workers m informa Sector a formal X Variance of Yesrs of Educsbon Workers In Formal Sector Duracion of Unespoyment Masmum Years of Educabon tar Workers m Ago ure Degree of Market Tigntness Powe of Workerz 0 5 Average Wage n Formal Sector Vacancy ate Peri Average Income gode Threshold Level of Educsbonisidis Regured to come in Informa Economy Date of Informal Job Destrucbon 56 Average income Threshold Level of ducsboniSidis amp egured For a Formal Job Output Elasticty of Labor m Agriculture 2 62587 Aver age Income Level of Education Regueed for Informal Job Searct z e Nerva Formal Sector Job Or Ans of formal Sector Job Opp 2 363 Load inguts tor New Samuls
21. oyed Average earnings income from labor in the bad jobs sector Average earnings income from labor in the good jobs sector Average earnings income from labor in agriculture The mean and variance of the years of education VON NO NONO NO VV VV WV The maximum level of education found in the survey or and the average level of education of the 1 most educated workers The elasticity of labor in the agricultural production function dY dE E Y This elasticity can be estimated using time series data on agricultural output and total employment in agriculture This data may be available from FAO statistics alternatively if 1t can be obtained from any study that has estimates for this elasticity gt It is recommended that outliers be eliminated before doing the computation for average earnings Data requirements for strategy based on unemployment duration gt Average duration of unemployment Share of active working age population employed in agriculture Share of active working age population employed in the bad jobs sector User s Manual Page 1 5 1 0 General Information Share of active working age population employed in the good jobs sector gt Share of active working age population unemployed gt Average earnings income from labor in the bad jobs sector Average earnings income from labor in the good jobs sector gt Average earnings income from labor in agriculture
22. ploved n informa Sector dd Lavel of Education Sols to Mage age Income n kroma Economy Rate of Informal Job Destruction Highest Threshold Lewel of Educ tion Sie for Forms tp Dastictyv of Labor m Agur Lowest T reznold Leve of Educ Recured for Informa Job 5 j 4 IFF of Arr Formal Sector Job Opportunities wa tor Job Ope Lom Inputs for agus New Sancdabun Run Smulatbon for Noa aga Figure 10 Simulation Notice that the values displayed in the data inputs are the same values used for calibration that were entered by the user The section is about running calibration for Nicaragua in order to that press Run Simulation for Nicaragua User s Manual Page 3 8 3 0 Getting Started lastra the impact of Macro shocks hoy on Labor markets amd SIMPLE Model Word Dark STET s Input Endoger us Verne rises re Tet rate a m of Formal b Average Years ot Workers ms informe Sector cf an infernal variance of Years of Education Aor Formal Sector nenploymert Manum Years of Education Dargareng Power of Workers Icone wee Unemployed rator sais Requred to Mgr see Average Income in irformae Ecoron Pate of Informe Job Detrucbon mE Average Incon Threshold Level of Educ ation Shak Requrec for a Formal job of Labor m Agricuture 0 625 Ave age Y Threshold Level of Educarion Sidi Arr d f Forna Sector Cost of
23. rate of arrival of shocks the rate of arrival of informal sector opportunities migration costs and the technological parameters of the production functions and matching functions In what follows we will describe the parameters of the model in more detail the calibration strategy and the results User s Manual Page 1 3 1 0 General Information 1 1 3 Model s Inputs The first step is to assign workers into one of those sectors or the unemployment state The following list gives specific examples of the classification BEEN Good jobs sector Sector 1 Bad jobs sector Sector 2 Rural Agriculture Sector 3 Unemployed Non agricultural Formal wage employment Al informal wage workers and all self employed workers that do not hire permanent workers outside of the family members All agricultural workers other than employers Broad unemployment definition including discouraged workers All wage non agricultural workers All self employed workers that do not employ permanent workers other than family members All agricultural workers other than employers Narrow definition of unemployment 1 e only those actively searching during the period of reference All formal workers 1 e with some insurance coverage in non agriculture All 1nformal workers 1 e with no health insurance coverage All agricultural workers other than employers Narrow definition of unemployment
24. rs to the high productivity ones which is most commonly referred to as structural change in the development literature are at the core of growth and poverty reduction In addition movement between sectors is often limited and unemployment is a luxury thus being more prevalent among workers in the middle class than among those in the poor one The Lack of structural models specifically for developing countries has hampered our understanding of the impact of economic shocks and economic policy on labor allocation and on earnings As the first step in remedying this knowledge gap PREMPR has developed a theoretical model that characterizes better the nature of multi sector labor markets in developing countries See Albrecht at al 2008 The SIMPLE software Simulating the Impact of Macroeconomics shocks and Policy on Labor markets and Employment is an attempt to operationalize this theoretical model by allowing users to calibrate the model to country specificities and conduct simulations of economic policies and economic shocks not only on cross sector labor allocation but also on earnings Country calibrations can be done using summary statistics from household surveys But benchmark parameters from a lower middle income country Nicaragua are also provided This first version of the model is designed to simulate economic shocks in economies where labor regulations minimum wages payroll taxes severance pay firing and hiring restrictio
25. s It the application process takes longer it triggers the fact that there might be an error on the data inputs or the initial values For more information regarding your inputs contact help desk contact information provided above Unemployment rate Duration of a formal job share of workers in informal sector Duration of an informal job Share of workers in Formal sector Duration of unemployment Share of workers in al Average wage for Average income in inf Average income in ag ghest threshold level of e Average income in the economy Lowest threshold level of e Rate of Arrival if Formal Se User s Manual Page 3 17
26. uld be used when no such data is available In this case the average duration of unemployment is need Most surveys tend to ask how long the unemployed have been searching for a job From this question it is possible to calculate the average duration of unemployment If unemployment duration is used it should be calculated for the same workers that are classified as unemployed In other words if the unemployed are those only actively searching then duration data should correspond only to duration of search If the unemployed include the discouraged or those temporarily inactive then duration statistics should also include the span during which discouraged workers or temporarily inactive workers have been without a job Many surveys tend to ask how long the unemployed have been without a job From the response of that question unemployment spell for the discouraged and temporarily inactive can be calculated Below we describe the data needed for each of the calibration strategies Data requirement for calibrating the model Data requirements for strategy based on employment duration Average duration of employment in the bad jobs Average duration of employment in the good jobs Share of active working age population employed in agriculture Share of active working age population employed in the bad jobs sector Share of active working age population employed in the good jobs sector Share of active working age population unempl
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