population in each EU country (Sutherland and Figari 2013). Using the same platform, the models produce comparative results based on the same income concepts, joint modeling conventions and similar assumptions. The simulations performed by EUROMOD are static in the sense that they abstract from behavioral reactions of individuals, and changes in the population composition are not considered.

The underlying microdata used in the simulations comes from the 2019 European Union Statistics on Income and Living Conditions (EU-SILC), which contain income information for 2018 and labor market information for 2019. Our simulations are based on 2020 tax-benefit policies (as of June 30) taking already existing and COVID-specific policies into account. Market incomes and non-simulated tax-benefit instruments in the data are adjusted to 2020 levels using source specific updating factors.

The data is furthermore adjusted for COVID-related labor market changes using the EUROMOD Labour Market Adjustment (LMA) Add-on (Christl et al. 2022a) which is adapted for the purpose of this research. The tool was initially developed to nowcast poverty and inequality changes in Europe (Gasior and Rastrigina 2017) as microdata only becomes available with a time-lag of about two years and is regularly being used by EUROSTAT – the statistical office of the EU – for their flash estimates of poverty and inequality.<sup>2</sup> Adjusted for the COVID specific situation, the LMA add-on transitions individuals from work (employment and self-employment) to unemployment as well as well as from work to monetary compensation schemes – i.e. workers still employed, but temporarily absent from work or working reduced hours, due to the lockdown - if available in the respective country. Following Christl et al. (2022b), we exclude transitions from inactivity or unemployment to employment as such transitions played a very small role in 2020.

Individuals are randomly selected for a transition to a different labor market status based on transition shares calculated from administrative information and the European Labour Force Survey, both provided by EUROSTAT. Both types of transitions – to unemployment and a monetary compensation scheme - are based on quarterly transitions in order to approximate annual overall transition rates in 2020 (an overview of transition shares foreach category in each country is provided in Appendix B). The ‘out of employment’ status is based on detailed quarterly LFS data for net changes in employment broken down by sex, age, sector of activity and type of contract. The break-down differs in some countries due to small sample sizes. Net changes are applied due to sample differences between LFS and EU-SILC data. For those transitioning to unemployment, their labor market incomes are adjusted based on the number of months left in employment and labor market characteristics are changed in order make the ‘newly’ unemployed eligible to unemployment benefits if they fulfil the eligibility criteria of the benefit. Transitions to monetary compensation schemes are based on monthly administrative data collected by EUROSTAT from EU Member States and measures the stock of workers supported by governments. For employees who transit to monetary compensation schemes, employment income and the number of months in employment are adjusted proportionally, considering the number of months in compensation schemes. For self-employed who transit to monetary compensation schemes, self-employment income and the number of months in self-employment are adjusted proportionally, considering the reduction in the number of months worked.

> 2 <u>https://ec.europa.eu/eurostat/web/experimental-statistics/income-inequality-and-poverty-indicators</u> [accessed on 23 May 2022]

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