Investigating economic insecurity through microsimulation

Background

Economic insecurity is related to but different from social mobility. Economic insecurity refers more to downward mobility risks, which are evaluated differently depending on the initial economic status. Economic insecurity is also different from vulnerability, which refers to exposure to an adverse shock. Economic insecurity adds a dynamic flavour to vulnerability, by looking at how individual trajectories evolve over time, possibly in response to many, correlated, shocks. Economic insecurity refers to the uncertainty surrounding individual trajectories over time, associated with issues such as unemployment, illness, widowhood, disability and old age –the hazards identified in Clause 25 of the UN Universal Declaration of Human Rights (Osberg, 2015):

“Everyone has the right to a standard of living adequate for the health and well-being of himself and of his family, including food, clothing, housing and medical care and necessary social services, and the right to security in the event of unemployment, sickness, disability, widowhood, old age or other lack of livelihood in circumstances beyond his control”.

There is a growing perception that economic insecurity, possibly even more than (inequality), is a major concern for individuals (Stiglitz et al., 2009; Hijzen and Menyhert, 2016).

Project aims

The overall aim of this project is to compute a new measure of economic insecurity and investigate how employment and wage dynamics and social protection affect it.

More specifically, the project aims to:

1) Develop an analytical tool to assess economic insecurity at the individual and household level and investigate its determinants.

2) Perform an ex-post evaluation of the policies put in place in the aftermath of the Great Recession (2007-2017) in Italy, in terms of their impact on economic insecurity.

3) Assess the level of economic insecurity as it can be perceived by informed households looking today (2018) at their future economic prospects.

4) Allow ex-ante evaluation of hypothetical policies aimed at reducing economic insecurity.

Methods

The proposed research builds on EUROMOD, the tax-benefit model developed by the University of Essex for the 27 EU member states plus the UK, and enriches it by allowing use of longitudinal (panel) data. 5 working papers (WPs) are envisaged:

WP0: Identification of measures of economic insecurity, starting from those available in the literature.
WP1: Development of a longitudinal version of EUROMOD-Italy, based on the longitudinal IT-SILC survey.
WP2: Refinement of the policy modelling in EUROMOD-Italy to take advantage of the new longitudinal input data.
WP3: Estimation of a behavioural labour supply model for Italy.
WP4: Development of a dynamic microsimulation model for Italy to evaluate the future economic prospects of individuals and households.
WP5: Development of online tools to assess the effects of different scenarios on economic insecurity.