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Microeconomic heterogeneity in wages, hours, and assets to inform an OLG model for New Zealand

Author

Listed:
  • Andrew Binning
  • Susie McKenzie
  • Murat Özbilgin
  • Christie Smith

    (The Treasury)

Abstract

This paper illustrates microeconomic evidence on wages, hours and net worth, which is used to inform the calibration of the overlapping generations (OLG) model under development at the Treasury. Using cross-sectional survey data, we compute quantiles of lifetime profiles for wages, net worth, and hours-worked. Hourly wages are a particularly important input into the OLG model since they affect both productivity and retirement decisions. Our microeconomic evidence is used to characterise five exogenous types of agents with varying productivity levels. These exogenous types approximate the diversity of wage outcomes and wealth levels seen in New Zealand, reflecting high-, low-, and middle-income people. Wage and asset heterogeneity is important in our OLG model to be able to evaluate policies that affect different groups of people differently. For example, a degree of heterogeneity is needed to consider how different tax rates or tax types (such as a capital income or wealth taxes) might affect people with few and many assets or how changes to the universality of superannuation might affect distributional and aggregate outcomes.

Suggested Citation

  • Andrew Binning & Susie McKenzie & Murat Özbilgin & Christie Smith, 2025. "Microeconomic heterogeneity in wages, hours, and assets to inform an OLG model for New Zealand," Treasury Analytical Notes Series an25/06, New Zealand Treasury.
    • Handle: RePEc:nzt:nztans:an25/06
    as

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    File URL: https://www.treasury.govt.nz/sites/default/files/2025-08/an25-06.pdf
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    References listed on IDEAS

    as
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    More about this item

    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J1 - Labor and Demographic Economics - - Demographic Economics
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models

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