A Framework for Simulating Annual Nominal Earnings

Jagadeesh Gokhale

in Social Security

Published by University of Chicago Press

Published in print April 2010 | ISBN: 9780226300337
Published online February 2013 | e-ISBN: 9780226300368 | DOI:
A Framework for Simulating Annual Nominal Earnings

Show Summary Details


One key variable that must be incorporated into Demographic and Economic Micro Simulation (DEMSIM) is labor earnings because it is the basis for determining Social Security's payroll taxes and benefits. This chapter discusses how the labor earnings process is modeled and fused into DEMSIM. The framework for simulating labor earnings developed here incorporates the impact of the population's demographic and economic attributes as they evolve through the historical period of 1970–2006 and beyond. Individual labor earnings are influenced by many attributes, such as a person's age, gender, level of education, and family type. The evolution of these factors—that govern people's participation and performance in the work force—is projected for future years in a manner that captures their interactions with each other conditional on their past states, including past earnings. This enables the projection over future years of their impact on total work effort, and especially on labor quality, both of which influence future earnings. The simulation of future earnings also accounts for growth in labor productivity from general technological changes and the evolution of the economy's capital stock.

Keywords: labor earnings; demographic; economic attributes; work force; labor productivity

Chapter.  7742 words.  Illustrated.

Subjects: Public Economics

Full text: subscription required

How to subscribe Recommend to my Librarian

Users without a subscription are not able to see the full content. Please, subscribe or login to access all content.