How to Change a Factor Market Closure in the UNI-CGE Model

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This guide shows you how to change a factor market closure in the UNI-CGE model.  Download a PDF version of this guide  HERE (PDF document377.0 KB) .

Factor Market Closure

Factors in the UNI-CGE model can be described (1) with a full employment or unemployment closure, and (2) as mobile across activities (can move to new employment) or sector-specific (must remain in their original employment) . Both closures – full employment and mobility - are defined in the UNI-CGE model using set definitions in the Excel country data file. The modeler defines the set of factors that may become unemployed or re-employed due to changing economic conditions, or that are sector-specific. Given these set definitions, the UNI-CGE model automatically implements the appropriate flag or model code.

 Factor Market Closure - Define Sets in Excel Country Data File

i. Open the Excel file with your country data.  Our example uses the SAM-US333.xlsx file.  

ii. Go to the “Sets” worksheet.  This page has the definitions of all sets in the model.

iii. The UNI-CGE model has two factor sets:

            SET FSF  - Factors that are Sector-specific (Fixed in original employment)  
            SET FUE  - Factors that can be UnEmployed 

In Figure 1, SET FUE has been defined to include labor (f-LABOR).  Set FSF is empty – so no factor has been designated as sector-specific.  These set definitions are shown in the figure only for demonstration. The default factor market closure that is used in model experiments assumes full employment and fully mobile factors. Both sets are therefore left empty.

Figure 1.  Set definition worksheet in SAM-US333.xlsx data file

How to define sets of unemployed and sector-specific factors in the Excel country data file

Larger version available HERE.

NOTE - a factor cannot be BOTH unemployed and activity-specific. If you assign the same factor to the set  FUE(f) and FSF(f), the model treats the factor as unemployed.

Unemployment Closure - Flags in the UNI-CGE Model

Factor market full employment/unemployment closure in the UNI-CGE model is implemented using flags.  After set FUE is defined, the model automatically applies the appropriate flag. 
The factor employment closure has a flag value of one or two (Table 1).  A full employment closure has a value of 1, and an unemployment closure has a value of 2.

Table 1.  Factor market closure – full employment versus unemployment

Closure

Flag  number

Fixed variable

Variable that adjusts

Full employment

FCLOS(f) = 1

Factor supply

Factor wage or rent

Unemployment

FCLOS(f) = 2

Factor wage or rent

Factor supply

 First, the UNI-CGE model code defines all factors as fully employed, with a flag of 1:

            FCLOS(F)         = 1 ; 

Then, the model redefines a factor as having an unemployment closure, with a flag of 2, IF it is included in set FUE in the country data file:

            FCLOS(f)$FUE(f)  = 2 ;

Factor Mobility Closure - Code in the UNI-CG Model

The factor mobility closure in the UNI-CGE model is implemented by turning on the appropriate model code IF the modeler has defined a sector-specific factor in set FSF. Table 2 presents and explains the code:

Table 2.  UNI-CGE model code for sector-specific factors

Model code

What it does:

IF((FCLOS(F) = 1 AND FSF(F)),

 

The code is conditioned.  It is turned on IF the factor is fully employed AND it is included in set FSF

  QF.FX(F,A)      = QF0(F,A) ;

 

The quantity of factor f (QF) employed in activity a is fixed at the original level

  WFDIST.LO(F,A)  = -INF ;

  WFDIST.UP(F,A)  = +INF ;

 

The sectoral wage/rent differential (WFDIST) will adjust to keep factors in their original employment

  WF.FX(F)        = WF0(F) ;

 

The economy-wide average wage/rent (WF) (excluding the sectoral premia) is fixed at its original level.



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Last modified: Thursday, 2 May 2024, 1:36 PM