Developing a Dynamic Micro-Simulation Model to Analyze the Effect of Public Pension Reforms

Abstract

This study aims to develop KIHASA SIM, a dynamic microsimulation model, to assess the effects of public pension reforms. To enhance relevance and accuracy, KIHASA SIM is constructed by extensively updating and reorganizing DOSA, a microsimulation model developed by the Korea Institute of Health and Social Affairs in 2016. It uses a 2% sample (998,459 individuals) from the 2015 Population and Housing Census data as its base set. The model integrates a wide array of micro-data from Korea to simulate key life events, including childbirth, marriage, divorce, education, earnings, public pension, asset accumulation, and mortality. We verify the simulation results by comparing them with the income distribution and economic activity transition probabilities observed in the Korean Labor Panel data, confirming their similarity. We also confirm that this model's long-term financial outlook is similar to the results of the National Pension Service's 5th actuarial forecast. These results underscore the practical utility of KIHASA SIM, demonstrating its capability to provide insightful analyses of the nuanced effects of pension reforms. This validated model is essential for policymakers and researchers in developing informed, long-term management strategies for public pensions.