Finally, the model does not allow for geographic mobility of factors (labor or capital) across time. Thus, all individuals are assumed to remain in their 2010 place of origin, even as they experience a change in labor force status or sector of employment. While this assumption is an abstraction from truth, it is likely to matter only when the results are disaggregated spatially or across rural and urban areas.

# **3. Data description**

There are two main sources of information demanded by the micro-simulation model: macroeconomic and microeconomic inputs. The _macroeconomic inputs_ are intended to capture most of the transmission channels mentioned in previous section. These variables are: i) changes in aggregate GDP and by economic sector; ii) changes in labor force participation and total and sectoral employment levels; iii) changes in international remittances; iv) population growth; and v) changes in price of food relative to non-food. These inputs are based on historical data provided mainly by Statistical Office of Serbia; except for international remittances which are based on World Development Indicators (WDI) database (Table 1 and 2).

The different aggregates of the GDP were classified in three main economic sectors: agriculture, industry which includes construction and mining among others; and services. Employment information, obtained from the Labor Force Survey (LFS) was defined for those individuals with more than 15 years old and it follows the same sectoral classification as the GDP. Population growth is not particularly relevant in the Serbian case. The total population is projected to decline marginally by 0.4 percent annually between 2010 and 2011. We use the population projections from the Statistical Office of the Republic of Serbia (SORS).

The _microeconomic inputs_ are based on the HBS from 2008 until 2010 rounds. Table 3 presents some summary statistics about these micro data. Most characteristics of the population remained relatively stable during the interval. However, the unemployment rate increased sharply in 2009 and 2010 for individuals with more than 15 years old. This is consistent with the trend described by the Labor Force Survey during and after the financial crisis.

A number of assumptions needed to be made in order to combine the GDP and employment data with that of the HBS. First, the sector of employment is not available in the HBS survey. It is constructed based on the occupation reported by the respondent (Table 4). The sectoral distribution of employment in the HBS derived from occupations (Table 3) is similar to the sectoral distribution of employment as recorded by the LFS (see Table 2). The share of agricultural population is the same across the two surveys, whereas the HBS records a somewhat lower share of those in industry (by about 6 percentage points), and a somewhat higher share of those employed in the services sector of the economy (by about 8 percentage points).

The second assumption concerns individual incomes, which were constructed based on a total of two income categories, reported by individual household members: (i) Regular and irregular receipts from employment (incomes, receipts based on quarterly or semi-annual reports, benefits etc.); and (ii) Receipts from out of regular employment, premiums, rewards, savings from business trips, transport costs – remunerations, clothes.

_Agricultural incomes_ : these are based on a separate agricultural revenues and expenditures module in the HBS. About 30 percent of households in 2008 – 2010 rounds of HBS report revenues and expenditures at a household level in a separate module. In order to assign these incomes to individuals, they are distributed, in per-farmer terms, across those household members who report their occupation to be agricultural. If there are no household members with agricultural occupations, these incomes are assigned to those employed members and considered as income from a secondary occupation (i.e. agricultural).<sup>14</sup>

> 14 Note that in allocating net revenue across household members we are constrained by the fact that information on hours worked, which would have allowed for a more accurate allocation, is not available in the HBS.

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