Policy and Complex Systems
The model is initialized setting Nfirm , Nwork , and initial-wealth , and the parameters strict , thrsprev , thrsflex2 , thrsflex3 , memory-size , and numberstrategies discussed above . The model does not need external data .
The simulation then runs according to the following scheme ( Pseudocode ):
Create firms and workers Create sectors Allocate randomly workers to sectors Set initial conditions for n periods Dismissal For each sector For each worker If worker ’ s cost > threshold Dismissal Human capital investment For each unemployed If vacancy in sector i > threshold invest Else if calculate payoff Choose investment strategy Apply investment strategy Hiring For each sector For each firm If vacancy If worker apply Select worker Else Not fill vacancy End n period
A single iteration involves the steps summarized in the overhead Pseudocode . An iteration is repeated 1,000 times , with the time limit set to 1,000 . The general Baseline model simulates a labor market that consists of 15 firms , each posting a random number of available vacancies between one and 11 , and 50 workers . The user input values are set according to the values contained in Table 4 .
Table 4 — Baseline model parameters Parameter Baseline Model :
Value
NFirm [ 15 ] NWork [ 50 ] initial _ wealth [ 10 ] strict [ 0.99 ] thrsprev [ 4 ] memory-size [ 5 ] number-strategies [ 10 ] thrsflex2 [ 0.7 ] thrsflex3 [ 0.5 ] foreign [ 0 ]
What is following the reported are the values of the last iteration of each of the 1,000 runs that were conducted .
In Figure 1 , the histogram for the unemployment rate is plotted . The simulation refers to the case without government training policies , which are described in the following section .
On average , the unemployment rate is 4.6 %, while the employment rate is conversely around 95.4 %.
Importantly , this result is sensitive to the magnitude of the thresholds or of the initial _ wealth for the human capital investment ( Table 5 ). By assuming a 1 % intensification for the “ layoff ” threshold , the policymaker can obtain a 0.58 point decrease on average in the unemployment rate , 2.63 in percentage less than the initial estimated rate . Increasing initial-wealth , unemployment goes down driven by a higher inflow rate from unemployment .
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