Agents are heterogeneous in the employment offer they get and in their endowment with assets.
As they cannot perfectly insure against their labour income risk, the model does not reduce to a representative agent analysis, reflecting a more realistic, complex interaction of individual decisions under uncertainty. The extension to more discrimination in the tax and transfer schemes only slightly complicates the computation while improving the approximation to reality. Likewise, introducing an aggregate productivity shock allows to observe the effects of business cycle fluctuations. The framework lends itself to a variety of interesting policy questions concerning the influence of business cycles, heterogeneity and wealth distribution on the unemployment and participation rates, which are analysed using simulations of a model version calibrated to fit the German labour market. The complexity of the model also allows to examine distributional features beyond the aggregate values e.g. regarding the relation between employment status, wealth and savings.