we use population growth projections to adjust for demographic changes between 2005 (base year) and 2009‐2010. This adjustment is particularly important in the case of Bangladesh because fertility rates are still high, which implies that the number of labor market entrants rises faster than overall population, and the baseline household survey is relatively old. In practical terms, taking into account population growth allows us to explicitly take into changes in the size of the working age population, and hence to distinguish between employment growth driven (or rather absorbed) by demographic trends and net (or additional) employment growth.

Secondly, we use the projections from the labor force status and labor earnings models to replicate projected changes in aggregate total and sectoral output and employment. We start with employment and calculate the total number of individuals that need to be reassigned between employment and non‐ employment and across employment sectors in order to match projected aggregate changes in total and sectoral employment. We then use the estimated probabilities from the multinomial model to select candidates for reassignment.<sup>10</sup> The direction and magnitude of flows between employment and non‐ employment and across sectors of employment is given by changes in the relative shares of different status with respect to the reference population. For instance, whether individuals must be reassigned from non‐employment to employment or vice‐versa depends on whether the employment rate of individuals ages 15 to 64 is increasing or decreasing. Similarly, workers are expelled from sectors whose relative share in total employment is declining and absorbed into sectors whose relative share in total employment is increasing will absorb workers (note that this is independent of whether employment in a sector is growing or contracting in absolute terms).

The sequence in which individuals are reassigned across states and sectors matters for the final simulation results so we briefly describe here the procedure we follow:

- Step 1 ‐ Flows between employment and non‐employment: If the employment rate is increasing, non‐employed individuals with the lowest predicted probability of being non‐ employed will be reassigned. If the employment rate is declining, employed individuals with the highest probability of being non‐employed will be reassigned. Reassignments will continue up to the point where the change in the employment rate at the micro level matches the change at the macro level.

- Step 2 ‐ Flows out of contracting sectors: For sectors whose share of total employment is declining, those individuals with the lowest predicted probability of being employed in the sector will be selected out and added to the pool of “eligible” workers to be employed in growing sectors (notice this pool also contains those who has been reassigned from non‐ employment if the total employment rate is growing). Reassignments out of each sector will continue up to the point where the change in the sector employment share at the micro level matches the change at the macro level.

> 10 We add error terms which represent the unobserved heterogeneity of agents’ labor supply behavior. These lead to some disparateness in responses to a change in the labor demand, capturing the fact that in the real world individuals who are identical in observables might still respond differently the same change in labor demand.

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