and job characteristics, we add a random element to the predicted earnings produced by the model to account for unobserved heterogeneity.<sup>9</sup> For all other individuals, we use the earnings information available in the household survey.

Once all workers have been assigned positive labor earnings, total earnings in a sector are adjusted to match aggregate projected changes in output. This step relies on the fact that that projected changes in sectoral output can be explained by projected changes in sectoral employment and projected changes in sectoral earnings and profits, and _assumes_ that earnings and profits grow at the same rate.

The treatment of public sector workers and those with more than one job differs slightly from what we just described. Total public sector employment is assumed to remain constant (i.e. no individuals are assigned to or out of the public sector) and labor earnings of public sector workers are adjusted in line with their sectoral mapping (agriculture, industry or services). Similarly for those holding more than one job, we assume the sector of employment of their secondary activity remains constant while earnings are adjusted in line with sectoral changes.

The third step in the simulation process pertains to changes in international remittances. As mentioned above, in the case of Philippines we simulate these changes following a very simple allocation rule. We calculate the total change in international remittances between 2006 and 2009‐2010, using actual and projected data (this change is positive under both the crisis and the benchmark scenarios) and allocate the dividend as follows: (i) across regions, remittances are allocated proportionally to the 2006 regional distribution; (ii) among households within regions: recipient households are selected at random and given a remittance transfer equivalent in real terms to the average remittance transfer in that region in 2006, with the _number_ of total transfers to be made within each region being equal to the total amount of additional remittances to be distributed divided by the 2006 average value. As a result of this process the overall distribution of remittances across regions remains unchanged; while there is an increase in number of recipient households (both types of households, those who did or did not receive remittances in 2006, _can_ receive new remittances in 2009‐10).

Finally we simulate changes in other sources of non‐labor income. For this we assume that capital and financial income grow at the same rate as real GDP, public transfers (primarily safety net and Social Security transfers) remain constant in real terms at 2006 levels, and domestic remittances change at the same rate as labor income. These assumptions appear to be reasonable for Philippines, and can be modified for other countries depending on country circumstances.

**Assessment of Impacts.** Impact assessment is the process by which we use the information on individual employment status and labor income, as well as on non‐labor income at the household level, to generate income distributions and construct various poverty and distributional measures that can then be used to compare the crisis and the benchmark scenarios. This is done in three steps.

> 9 Specifically, we draw an individual error from the error distribution generated during the estimation of the earnings equation.

9