Abstract
This paper presents an agent-based model of labor market participation, in which a population of agents is affected by adverse health shocks that impact the costs associated with work efforts, and decides whether to leave the labor market. This decision is simply taken by looking at the working behaviors of the other agents, comparing the respective levels of well-being and imitating the more advantageous decision of others. The analysis reveals that such mechanism of social learning suffices to replicate the existing empirical evidence regarding the decline in labor market participation of older people. As a consequence, the paper demonstrates that it is not necessary to assume perfect and unrealistic rationality at the individual level to reproduce a rational behavior in the aggregate.
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Notes
- 1.
This is an Herculean task requiring, among other things, to estimate transition probabilities from one state to all possible future states based on beliefs which, in turn, depends on 26 parameters to be determined. Other questionable assumptions include “rational expectations”, a notion according to which all individual subjective probabilities equate the “objectively estimable population probability” and the capability to anticipate regulatory changes. The paper acknowledges several times that only some justification for such assumptions can be provided.
- 2.
These statistics include people both in and outside the labor force. The data used to draw the curves in Fig. 1 are taken from the Table 4 A.3 in the Annex 4.1 - Tables on Work and Retirement of the first wave of the ELSA survey. http://www.elsa-project.ac.uk/reportWave1.
- 3.
As mentioned previously, pensioners and pension income can also be interpreted as people who decide to leave the labor market and receive a subsidy or a disability benefit.
- 4.
Simulations are performed using the BehaviorSpace tool in NetLogo, which allows to specify the grid of parameter values and the number of simulations for each point of the grid.
- 5.
These seven classes of age correspond to the ones presented in the Table 4 A.3 in the Annex 4.1 - Tables on Work and Retirement of the first wave of the ELSA survey.
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Moro, A., Pellizzari, P. (2016). An Agent-Based Model of Labor Market Participation with Health Shocks. In: Demazeau, Y., Ito, T., Bajo, J., Escalona, M. (eds) Advances in Practical Applications of Scalable Multi-agent Systems. The PAAMS Collection. PAAMS 2016. Lecture Notes in Computer Science(), vol 9662. Springer, Cham. https://doi.org/10.1007/978-3-319-39324-7_14
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