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OECDPapersonWell-beingandInequalitiesNo.12

Nowcastingandprovisional

estimatesofincome

inequalityusing

microsimulationtechniques

HoracioLevy

/10.1787/c0b88e7f-en

OrganisationforEconomicCo-operationandDevelopment

WISE(202W3E|(023)2 Englishtextonly

WELL-BEING,INCLUSION,SUSTAINABILITYANDEQUALOPPORTUNITYCENTRE

Nowcastingandprovisionalestimatesofincomeinequalityusingmicrosimulationtechniques

JELClassification:D31,C81,E27

Keywords:incomedistribution,nowcasting,microsimulation

AllOECDWorkingPapersonWell-beingandInequalitiesareavailableat:

/wise/papersandbriefs

.

HoracioLevy:

Horacio.LEVY@

.

OFDE

ForOfficialUse

Thisdocument,aswellasanydataandmapincludedherein,arewithoutprejudicetothestatusoforsovereigntyoveranyterritory,tothedelimitationofinternationalfrontiersandboundariesandtothenameofanyterritory,cityorarea.

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NOWCASTINGANDPROVISIONALESTIMATESOFINCOMEINEQUALITYUSINGMICROSIMULATIONTECHNIQUES

OECDPapersonWell-beingand

Inequalities

/wise/papersandbriefs

TheOECDPapersonWell-beingandInequalitiesSeries–managedbytheOECDCentreonWell-being,Inclusion,SustainabilityandEqualOpportunity(WISE)–featuresworkingpapersonthemeasurementagendaforwell-being,inclusion,sustainabilityandequalopportunityaswellaspapersseekingtodeepentheunderstandingofthedriversoftheseissues,thewaysinwhichtheyinteractandhowtheyevolve.ThesepapersarepreparedbyOECDstaff,externalexpertsorbyoutsideconsultantsworkingonOECDprojects.

OECDWorkingPapersshouldnotbereportedasrepresentingtheofficialviewsoftheOECDorofitsmembercountries.Theopinionsexpressedandargumentsemployedarethoseoftheauthor(s).

WorkingPapersdescribepreliminaryresultsorresearchinprogressbytheauthor(s)andarepublishedtostimulatediscussiononabroadrangeofissuesonwhichtheOECDworks.CommentsonWorkingPapersarewelcomed,andmaybesentto

wellbeing@

.

Thisseriesisdesignedtomakeavailabletoawiderreadershipselectedlabourmarket,socialpolicyandmigrationstudiespreparedforusewithintheOECD.Authorshipisusuallycollective,butprincipalwritersarenamed.Thepapersaregenerallyavailableonlyintheiroriginallanguage–EnglishorFrench–withasummaryintheother.

Thisdocumentandanymapincludedhereinarewithoutprejudicetothestatusoforsovereigntyoveranyterritory,tothedelimitationofinternationalfrontiersandboundariesandtothenameofanyterritory,cityorarea.

ThereleaseofthisworkingpaperhasbeenauthorisedbyRominaBoarini,DirectoroftheOECDCentreonWell-being,Inclusion,SustainabilityandEqualOpportunity(WISE).

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NOWCASTINGANDPROVISIONALESTIMATESOFINCOMEINEQUALITYUSINGMICROSIMULATIONTECHNIQUES

Acknowledgements

ThispaperwaspreparedbytheOECDCentreonWell-Being,Inclusion,SustainabilityandEqualOpportunity(WISECentre).ItwasdevelopedundertheleadershipofRominaBoarini(DirectorofOECDWISECentre)andsupervisionofCarlottaBalestra(HeadoftheInequalitiesUnit,OECDWISECentre).ThereportwaswrittenbyHoracioLevy(OECDWISECentre).LuizHermida(OECDWISECentre)managedthedataandcontributedtopreparingresults.CircéMaillet(formerinternatOECDWISECentre)collectedindicatorsfromtheliterature.CassandraMorley(OECDWISEPublicationsandEventCo-ordinator)preparedthepaperforpublication.MartineZaïda(OECDWISECommunications,PartnershipandForumManager)providedsupportandadviceoncommunicationaspects.

TheauthorwouldliketothankdelegatestotheOECDWorkingPartyonSocialPolicyandtotheOECDCommitteeonStatisticsandStatisticalPolicy,aswellasMarcoMirad’Ercole(formerCounsellorintheOECDWISECentre),MichaelFörster(formerHeadoftheInequalitiesUnit,OECDWISECentre),JorritZwijnenburg(HeadofSection,OECDStatisticsandDataDirectorate)andparticipantsoftheWISEwebinar“NowcastingProvisionalIncomeInequalityEstimatesUsingMicrosimulationTechniques”,theBSE-WBWorkshop"AssessingtheImpactofPovertyandSocialTransfersduringCrises:Micro-simulationandRealTimeAnalyses"andthemeetingoftheOECDExpertGrouponDisparitieswithinaNationalAccountsframework,forcommentsandfeedbackonearlierversionsofthepaper.

WeareindebtedtoChristineWirtz(EurostatDirectorofSocialStatistics),AuraLeulescu(Eurostat)andAndreaGallelli(Eurostat)foraccesstoEurostatestimatesandfortheongoingcollaborationbetweenEurostatandtheOECDSecretariattoimproveanddisseminatenowcastingtechniquestoproducetimelyincomeinequalityestimates.WegratefullyacknowledgeFloreCornuet(INSEE),ChantalHicks(StatisticsCanada),CharlesHokayem(U.S.CensusBureau)forexchangesandadviseondatafortimelyinequalityestimatesfromtheirnationalstatisticaloffices.

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NOWCASTINGANDPROVISIONALESTIMATESOFINCOMEINEQUALITYUSINGMICROSIMULATIONTECHNIQUES

Abstract

TheOECDIncomeDistributionDatabase(IDD)playsaleadingroleinprovidingevidence,andinmonitoringandanalysinginternationalincomedistributionstatisticstoinformpolicydebate.InmostOECDcountries,officialincomedistributionstatisticsareusuallydeliveredwithtimelagsvaryingfromtwotothreeyears.Thispaperexaminesthegrowingusebystatisticalofficesofnowcastingtechniquesbasedonmicrosimulationmodelstoproducemoretimelyprovisionalestimates,andexaminestheadvantagesandchallengesassociatedwiththesetechniques.Thepaperalsopresentsprovisionalestimatesofincomeinequalityin2020foraselectionofOECDcountries,basedonacompilationcarriedoutbytheOECDSecretariatincollaborationwithEurostatandnationalstatisticaloffices.Finally,itdiscussespotentialfuturedevelopmentsandapplicationsofthesetechniques.

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NOWCASTINGANDPROVISIONALESTIMATESOFINCOMEINEQUALITYUSINGMICROSIMULATIONTECHNIQUES

Résumé

Labasededonnéesdel'OCDEsurlarépartitiondesrevenus(IDD)joueunrôledepremierplandanslafournituredepreuves,ainsiquedanslesuivietl'analysedesstatistiquesinternationalessurlarépartitiondesrevenus,afind'éclairerledébatpolitique.Danslaplupartdespaysdel'OCDE,lesstatistiquesofficiellessurlarépartitiondesrevenussontgénéralementfourniesavecundécalagetemporeldedeuxàtroisans.Cedocumentexaminel'utilisationcroissanteparlesofficesstatistiquesdetechniquesdeprévisionimmédiatebaséessurdesmodèlesdemicrosimulationpourproduiredesestimationsprovisoiresplusrapides,etexaminelesavantagesetlesdéfisassociésàcestechniques.Ledocumentprésenteégalementdesestimationsprovisoiresdel'inégalitédesrevenusen2020pourunesélectiondepaysdel'OCDE,surlabased'unecompilationréaliséeparleSecrétariatdel'OCDEencollaborationavecEurostatetlesofficesstatistiquesnationaux.Enfin,ilabordelesdéveloppementsetapplicationspotentielsdecestechniques.

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NOWCASTINGANDPROVISIONALESTIMATESOFINCOMEINEQUALITYUSINGMICROSIMULATIONTECHNIQUES

Tableofcontents

OECDPapersonWell-beingandInequalities2

Acknowledgements3

Abstract4

Résumé5

1Introduction8

2Timelinessofincomeinequalityindicators11

3Nowcastingmethodsbasedonmicrosimulationmodelling14

4ProvisionalestimatesofincomeinequalityfortheOECDIncomeDistribution

Database20

Producingprovisionalestimatesofincomeinequality20

Provisionalestimatesofincomeinequalityin202025

Accuracyofestimates29

5Conclusionsandnextsteps33

References35

AnnexA.Methodologicalcharacteristicsofexternalsources42

FIGURES

Figure3.1.Adjustmentsandinteractionsinnowcastingbasedonmicrosimulationmodelling15

Figure3.2.Nowcastingbasedonmicrosimulationmodelscanpredictchangesinincomeinequalitytrends17

Figure4.1.Inequalityindicatorsdiffermorewhenunderlyingdatasourcesarenotthesame24

Figure4.2.Provisionalestimatessuggestthat,onaverageintheOECD,aftertax-transferincomeinequality

hasnotchangedsignificantly26

Figure4.3.Provisionalestimatesindicateaconsiderableriseofinequalityoflabourincome27

Figure4.4.Provisionalestimatessuggestthatlower-incomehouseholdshadconsiderablefallsinlabour

incomebutnotindisposableincome28

Figure4.5.Inpreviousyearsprovisionalestimateswerebroadlyinlinewithfinalmeasures30

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NOWCASTINGANDPROVISIONALESTIMATESOFINCOMEINEQUALITYUSINGMICROSIMULATIONTECHNIQUES

TABLES

Table2.1.Incomeinequalityindicatorstendtobepublishedwithatwo-to-three-yeargap12

Table4.1.Externalevidencealsosuggestssmallchangesinincomeinequalityformostcountries31

TableA.1.KeymethodologicalcharacteristicsofpapersinTable4.142

BOXES

Box3.1.Othermethodsusedtogeneratemoretimelyincomedistributionestimates15

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1Introduction

Fordecades,theOECDhasbeenproducingandanalysingincomeinequalityevidencetomonitoreconomic-socialprogressandtoinformthepolicydebate.SeveralOECDreportshavecontributedtothepublicandpolicyunderstandingofincomeinequality,analysingitstrends,causes,consequencesandremediesneededtoaddressthem(OECD,2008[1];2011[2];2015[3];2018[4];2019[5];2021[6]).MuchofthisanalysishasrestedontheOECDIncomeDistributionDatabase(IDD)(2021[7]),whichreliesoncomparableprotocolsanddefinitionsappliedbynationalcontactpoints(mainlyinnationalstatisticaloffices,NSOs)tocountries’officialsurveyandadministrativedata.TheIDDisoneofthemostreputableandextensivelyuseddatabasesforinternationalanalysisofincomedistributions(GaspariniandTornarolli,2015[8]).

Unlikemacroeconomicstatistics(e.g.GrossDomesticProduct,GDP),inflationorunemployment),incomeinequalityindicatorsareusuallypublishedwithaconsiderabledelay.Inequalityindicatorsareestimatedusingdatafromhouseholdsurveys,which,inmostOECDcountries,requireconsiderabletimetocollect,toprocessandtopublish.Compoundingthesedelaysisthefactthattheincomeconceptusedbysurveysandadministrativedatareferstothecalendarorfiscalyearprecedingthesurvey(or,lessoftenthepreceding12months).

Sincetheglobalfinancialcrisis,theneedformoretimelyestimateshasbecomemoreprominent.Theincreasingpublicinterestonincomeinequalityinrecentyearshasstrengthenedtheneedformoretimelydata.Thereisalsoconsiderablepoliticaldemandformorefrequentupdatesofincomeinequalitystatistics,asakeyrequirementforitswideradoptionasa“beyondGDP”indicator(Stiglitz,FitoussiandDurand,2018[9];Gentiloni,2021[10]).IntheG20BaliLeaders’Declaration,G20countriessupportedanewDataGapInitiative(DGI),whichincludesaspolicyprioritiesthe“distributionofhouseholdincomeandwealth”andtheimprovementof“timelinessandgranularityofofficialstatistics”(IMF,2022[11]).TheOECDcontributestothisinitiativethroughtheExpertGroupsonDistributiveNationalAccounts(EGDNA)andonDistributionalFinancialAccounts(EGDFA)(Zwijnenburgetal.,2021[12];Colietal.,2022[13]).

Nationalandinternationalstatisticalofficeshavethereforetakenanumberofstepstoacceleratethedataproductionprocess,whilenotfullysolvingtheproblem.Forexample,intheOECDIncomeDistributionDatabase(IDD)–whichreliesonincomedistributionindicatorsproducedbynationalstatisticaloffices–themostcommonlatestyearavailable,initsDecember2021

1

release,was2019(for21countries);amongtheremainingcountries,thelatestavailableobservationwas2018in11countries,2017in3,and2014inone(seeSection

2

).

Moretimelyofficialincomedistributionstatisticsareimportantforthepolicydebate.Intheabsenceoftimelyofficialstatistics,theresultinginformationvoidmaybefilledinbyalternativeestimatesbasedondataandmethodsthatarenotcomparabletoindicatorsproducedbynationalstatisticaloffices.InFrance,forexample,earlyestimatesproducedbycharitableorganisationssuggestedthatthenumberofincome-poorpeopleinFrancehadincreasedbyonemillionin2020asaresultoftheCOVID-19crisis(LeMonde,

1December2021referstothelatestreleasewhenthenowcastingexercisestarted.TheOECDupdatestheIDDdataseveraltimesayearaspartofitseffortstoimprovetimeliness.ThemostrecentIDDupdateatthetimeofwritingwasNovember2022andthemostcommonlatestavailableyearwas2019.

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NOWCASTINGANDPROVISIONALESTIMATESOFINCOMEINEQUALITYUSINGMICROSIMULATIONTECHNIQUES

2020[14]).ThisdevelopmentwasnotconfirmedbythelaterestimatesproducedbytheFrenchStatisticalOffice–INSEE(BuresiandCornuet,2021[15];Tavernier,2021[16];GarneroandGuillaneuf,2022[17]).

Timelyofficialestimatesarewidelyavailableformacroeconomicindicators.Followingtheglobalfinancialcrisis,nationalandinternationalstatisticalofficeshavetakenanumberofstepstoacceleratetheproductionofmacroeconomicstatistics,usingnowcastingtechniques.Since2016,forexample,EurostatpublishespreliminaryestimatesofquarterlyGDPabout30daysaftertheendofthequarter(Eurostat,2021[18]).In2020,theOECDintroducedaWeeklyTrackerofeconomicactivityfor46OECDandG20countriesusingGoogleTrendssearchdata(Woloszko,2020[19]).Nowcastingtechniquesusenewlyavailabledatathatstronglycorrelatewiththeindicatorofinteresttoarriveatearlyestimatesforthepresentorfortherecentpast(Zwijnenburg,2016[20]).

Nowcastingincomeinequalityisingeneralmorechallengingthannowcastingmacro-economicindicators,partlybecauseitrequiresestimatingincomedataatdifferentpointsofthedistribution.Threemainapproacheshavebeenusedtoestimatetimelyincomedistributionindicators.Afirstapproachreliesonalternativemicrodatasources(includingbigdata),asecondapproach,similartotheoneusedformacroeconomicnowcasting,reliesontime-serieseconometricmodellingofselectedpointsofthehouseholdincomedistribution,andathirdapproachreliesonadjustingmicrodatafrompreviousyearsusingnowcastingmethodsbasedonmicrosimulationmodelling(fordetails,seeSection

3

).ThestatisticalofficeoftheEuropeanUnion(Eurostat)hastestedavarietyofmodelswithintheseapproachesandconcludedthatnowcastingbasedonmicrosimulationmodelswasthe“preferredapproach”fordataproducersandmainusers(Eurostat,2020[21]).ThenationalstatisticalofficesofCanada,France,SwedenandtheUnitedKingdomhavealsousednowcastingmethodsbasedonmicrosimulationmodellingtoprovidemoretimelyprovisionalincomeinequalityindicatorsfortheyear2020(Eurostat,2020[22];OfficeforNationalStatistics,2020[23];StatisticsCanada,2021[24];BuresiandCornuet,2021[15];Helgeson,LindstromandHofsten,2018[25]).InAustralia,theNationalCentreforSocialandEconomicModelling(NATSEM)attheUniversityofCanberra,undertakesworktonowcastincomeinequalityusingmicrosimulationmethods(Lietal.,2021[26]).

Microsimulationmodelsarewidelyusedforexanteand“whatif”analysisoftheimpactoftaxesandbenefits(Figari,PaulusandSutherland,2015[27]).Microsimulationcanalsobeusedtoimputeinformationnotcollectedinhouseholdsurveys.IntheUnitedStates,forexample,theSupplementalPovertyMeasure(FoxandBurns,2021[28])andtheestimatesfeedingtheIDD,relyontheCurrentPopulationSurvey(CPS)complementedwithsimulationsfromtheCPStaxmodel(O’Hara,2004[29]).

Thenationalstatisticalofficesthatrelyonnowcastingmethodsbasedonmicrosimulationmodellingreporttheseestimatesaseither“experimentalstatistics”or“earlyestimates”(StatisticsCanada,2021[24];Eurostat,2020[21]).Sincetheestimatesaresubjecttoseveralsourcesofuncertainty(e.g.modelbiases,samplingerror,datainconsistencies),EurostatcurrentlypublishesresultsusingaRoundedUncertaintyInterval(RUI)ratherthanas“pointestimates”(Eurostat,2020[22])(seeSection

3

).

TheimportanceofmoretimelyestimatesofincomeinequalityhasbeenbroughttotheforebytheOECD2020MinisterialCouncilMeeting’srequesttodevelopaDashboardtoMonitoraStrong,Resilient,GreenandInclusiveRecoveryfromtheCOVID-19crisis(OECD,2021[30]).Incomeinequalitywasselectedasoneofthedashboard’sindicatorstoassessthe“inclusive”aspectsoftherecovery.Whileasarule,onlyindicatorsreferringto2020wereincludedinthedashboard,inthecaseofincomeinequalityIDDdatareferringtoearlieryearswereincludedas“spaceholders”,pendingmorerecentestimates.Asaresult,

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theOECDSecretariatistakingstepstoproducetimelyindicatorsforbothincomeinequalitybasedonnowcastingmethods(OECD,2021[30]).

2

Againstthisbackground,theSecretariatstartedworktounderstandhowmicrosimulationmodelling-basednowcastingcanbeusedtoproducemoretimelyestimatesofincomeinequalityandotherselectedindicatorsofincomedistribution(e.g.relativepoverty).Thispaperdescribestheiradvantagesandchallengesrelativetoothermethodsandpresentsprovisionalnowcastestimatesofincomeinequalityin2020

3

foraselectionofOECDcountries,basedonacompilationcarriedoutbytheSecretariatincollaborationwithEurostatandnationalstatisticaloffices.Finally,itdiscussespotentialfuturedevelopmentsandapplicationsofthesetechniques.

2AsimilarsituationappliestoGreenhouseGas(GHG)emissions,wherethemostrecentofficialestimatesreferto

2019.Intheseareasaswell,theOECD(inassociationwiththeIEAandtheIMF)iscurrentlyaimingtoproducequarterlyestimatesofGHGemissionsfromproduction.

3Theyear2020wasthelatestforwhichnowcastingevidencewasavailablewhentheanalysiswasbeingcarriedout.Atthetimeofwriting,someestimatesfor2021wereavailable.

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NOWCASTINGANDPROVISIONALESTIMATESOFINCOMEINEQUALITYUSINGMICROSIMULATIONTECHNIQUES

Timelinessofincomeinequality

indicators

2

IncomeinequalityindicatorsarepublishedlessfrequentlyandwithalongerdelaythanotherofficialstatisticssuchasGDP,inflationortheunemploymentrate.Incomeinequalityindicatorsaretypicallymeasuresbasedonhouseholdsurveys,administrativedata(incountrieswithcomprehensivepopulationregisters),oronacombinationofthetwo.InmostOECDcountries,thesedatarequireconsiderabletimetocollect,processandpublish.

Totakeadequate,informedandeffectivepolicymeasures,policymakersneedtimely,reliableandcomparablestatisticstomonitorthecurrentsituationandidentifytheimpactsoftheirpoliciesoninequality.Inrecentyears,theglobalfinancialcrisisandtheCOVID-19pandemichavetriggered/reinforcedthedemandforhighqualityandtimelyindicators,leadingNSOstore-assesstheaccuracy/timelinesstrade-offandtakestepsthathavebeenevadedinthepast.

Nationalandinternationalstatisticalofficeshavetakenseveralstepstoaccelerateandstreamlinetheproductionprocessofhouseholdincomesurveys.Deadlinesfordatacollectionandtransmissionhavebeenshortened.Administrativedatahavebeenincreasinglyusedtoreplaceatleastpartoftheinformationformerlycollectedthroughsurveyinterviews,althoughmainlytoreducetheburdenonrespondentsandincreasetheaccuracyofthedata(Jantti,TörmälehtoandMarlier,2013[31]).Provisionaldatafor2020havebeenpublishedaheadofthereleaseoffinalstatistics(Alaminos,DiMeglioandDupré,2021[32];BuresiandCornuet,2021[15];StatisticsCanada,2021[24]).

4

Theabove-mentionedmeasureshaveconsiderablyreducedthepublicationtimeofhouseholdsurveysandincomeinequalityindicators.However,theyhavenotfullysolvedtheproblem.Therearestillconsiderablegapsbetweentheperiodmeasuredandtimeofpublication.Tosomeextent,thesegapsareinevitablegiventhat,insomecountries,householdsurveysarenotcarriedouteveryyear(see

Table2.1

).Furthermore,inmostcountries,incomedatareferstothecalendaryearprecedingtheinterview,inordertocollectinformationonsomeincomeitems(e.g.dividends,taxpayments).Foradministrativedata,ontheotherhand,theconstraintmightbethedeadlinesforcompletingtaxreturns(usuallydoneaftertheendofthefiscalyear)andtheneedtomerge,cleanandprocessdatafromdifferentadministrativesources.

Despiterecentimprovements,thereisstillatwo-to-three-yeardelayinthepublicationofinternationallycomparableincomeinequalityindicators.InitsDecember2021release,theOECDIncomeDistributionDatabase(IDD)included2020dataforonlyonecountry,2019for21countries,2018for11countries,2017for3countriesand2014foronecountry(see

Table2.1

).Thedelaytendstobesmallerincountriesrelyingfullyorpartiallyonadministrativerecordsthanincountriescollectingdatathroughhouseholdsurveys;in

Table2.1,

2019or2020arethelatestyearsavailableinabouttwo-thirdsofcountriesusingadministrativerecords,whilethisisthecaseinjustabovehalfofcountriesusinghouseholdsurveys.

Table2.1

alsosuggeststhatdataaremoretimelyincountriesusingaweeklyormonthlyperiodforincome

4IntheEuropeanUnion,measuresintroducedaspartoftheIntegratedEuropeanSocialStatisticsRegulation(IESS)in2019shouldimprovethetimelinessofsocialindicatorsproducedbyEurostatusingdatafromEuropeanUnionStatisticsonIncomeandLivingConditions(EU-SILC)byatleast6months(Alaminos,DiMeglioandDupré,2021[32]).

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assessment,whensurveysarecollectedeveryyear,althoughthenumberofcountrieswherethisisthecaseispossiblytoosmalltodrawconclusions.

5

Table2.1.Incomeinequalityindicatorstendtobepublishedwithatwo-to-three-yeargap

OECDIncomeDistributionDatabase(IDD),latestdataavailableintheDecember2021release.

Country

Most

recent

available

year*

Frequencyofdatacollection

Assessment

period

Natureofsource

Datasource

Australia

2017/18a

Biennial

Week/monthd

Householdsurvey

SurveyofIncomeandHousing

Austria

2019

Annual

Year

Survey+

administrative

records

EUSurveyofIncomeandLivingConditions(processedbyOECDSecretariat)

Belgium

2019

Annual

Year

Survey+

administrative

records

EUSurveyofIncomeandLivingConditions(processedbyOECDSecretariat)

Canada

2019a

Annual

Year

Survey+

administrativ

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