Research summary: Dynamic Microsimulation Initiative
Title of the report: PASSAGES - A dynamic microsimulation model of the retirement income system in Canada
Authors of the report: Willy Yakam and Benoît-Paul Hébert
Alternate formats
Dynamic microsimulation initiative [PDF - 247 KB]
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Why this study
Dynamic microsimulation is a method used for the analysis of social and fiscal policies, such as income support programs and pension plans. It allows for projecting the outcomes of these policies in the short or long term, as well as evaluating the effects of potential reforms. It enables examination of results at the level of individuals, households, or the entire population.
It consists of simulating the evolution of a sample of individuals over time. This is done using a computer system containing several mathematical equations. The equations serve to determine when individuals are more likely to experience certain changes. For example, obtaining a diploma or the birth of a child. They also serve to reproduce the rules of social security programs. They also allow for reflecting socio-economic trends, such as inflation and immigration.
The Dynamic Microsimulation Initiative aims to provide government analysts and others with a tool capable of supporting research on the retirement income system, starting with the Canada Pension Plan (CPP).
What we did
In 2019, Employment and Social Development Canada entered into four-year agreements with teams from Statistics Canada and HEC Montréal. Their mandate was to design and implement a dynamic microsimulation model focused on the CPP.
Part of the work involved developing the database that constitutes the model's "starting sample." The data was drawn from the 2016 Census. It was also taken from administrative files dating back to 1966 (the year the CPP began). Two versions of the database were produced. One version is confidential and accessible to authorized users. The other version is synthetic and publicly accessible.
The other part of the work involved developing the different modules that make up the model, namely:
- education (start and end of school attendance, highest diploma obtained)
- marital status (marriages, common-law unions, separations and divorces)
- fertility (incidence of births by age)
- employment (unemployed, salaried employment, self-employment, combination of employment and self-employment)
- earnings (employment and self-employment income)
- interregional migration (rates based on the census)
- international migration (annual net immigration rates)
- CPP benefits (eligibility for a benefit depending on the type of benefit)
- mortality (mortality rates by age)
Some modules, such as those on marital status and employment, contain several equations. They serve to determine the probability that individuals in the sample will experience certain changes. These equations were estimated, depending on the case, using data from surveys, the census, or administrative files.
Other modules, such as the one on mortality, used projections from Statistics Canada and the Office of the Chief Actuary.
The dynamic microsimulation model resulting from this work was named PASSAGES. It was released on April 23, 2024. An update followed on October 18, 2024. The public version of PASSAGES (including source code, documentation, and synthetic data) can be obtained by contacting statcan.passagesmodel-modelepassages.statcan@statcan.gc.ca.
What it means
PASSAGES will add value to the policy development and analysis process. It will allow:
- examination of CPP outcomes (including the recent enhancement) for future cohorts of retirees
- evaluation of the net effects of an increase in one of the CPP benefits (such as the survivor's pension) on the amounts received by individuals, taking into account the rules that cap the total of combined benefits
- comparison of income progression of different cohorts of contributors over their entire careers
- study of the effects of different CPP parameters on sub-populations of interest such as immigrants or precarious workers
- identification of groups of contributors who may be positively or negatively affected (the "winners" and "losers") by any new policy proposal
Contact us
Strategic and Service Policy Branch, Social Policy Directorate, Social Research Division
Email: esdc.nc.sspb.research-recherche.dgpss.cn.edsc@hrsdc-rhdcc.gc.ca