In the light of quickly changing policies and the associated rules, and the lack of external statistics, implementing COVID-related policies in a comparable manner was a challenging task for both the national teams and the EUROMOD developers. Yet another challenge was to model the labour market transitions.

In standard EUROMOD practice, the observed labour market status of individuals remains unchanged in the baseline and therefore does not allow for the simulation of monetary compensation schemes and new COVID-related unemployment benefits. Given the importance of such policies for budgetary and distributional analysis, EUROMOD I3.0+ includes new features allowing users to design and implement labour market transitions from work to either unemployment or monetary compensations schemes, and simultaneously trigger the simulation of relevant policies. This is done through the Labour Market Adjustment (LMA) add-on.

The LMA Add-on was initially developed as part of the Nowcasting toolkit that refers to the estimation of timely indicators for monitoring income inequality and poverty. It is a microsimulation-based methodology for estimating changes in the income distribution over time, if income microdata is not yet available.

In its original form, the LMA Add-on covered the transition from employment to unemployment (short-term or long-term), and the transition from unemployment to employment. In relation to the COVID crisis, the LMA Add-on has been modified by including additional features. In particular, the enhanced LMA Add-on also covers transitions to monetary compensation schemes and relaxes the assumption of yearly transitions to unemployment (or employment) by allowing users to define the duration of transitions.¹

In short, switching on the LMA Add-on and running EUROMOD will instruct the model to perform the labour market transitions defined by the user (the pre-defined option ² can be used if the user does not want to change anything), and will produce an output that relies on the new labour market conditions in 2020.

Hence, EUROMOD produces a sophisticated replication of labour market conditions as they were in 2020 and therefore a simulation of monetary compensation and other COVID-related policies.³ In this way, EUROMOD provides the first assessments of the budgetary and distributional impact of those policies in EU countries.⁴

We encourage the EUROMOD community to use the LMA Add-on to simulate labour market transitions and COVID-related policies, and to contact the JRC if they have any comments or suggestions. Meanwhile, stay healthy and do not forget to wash your hands regularly!

¹ Currently, this is only possible for workers who transit to monetary compensation schemes and for employees entering unemployment. As regards self-employed people who transit to unemployment, only yearly transitions are available.

² Administrative data collected by national teams and developers, and data provided by Eurostat used for transiting individuals to monetary compensation schemes or to unemployment.

³ As a note of caution, please be aware that the simulation of COVID-related policies through labour market transitions is considered experimental and is only partly validated, due to the lack of external data. For more information, please read the manual ´Simulating labour market transitions in EUROMOD: EUROMOD LMA add-on and COVID-related policies‘.

⁴ For example, Impact of COVID-19 on employment income - advanced estimates