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Measuring the (income) effect of disability insurance generosity on labour market participation

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  • Marie, Olivier
  • Vall Castello, Judit

Abstract

We analyze the employment effect of a law that provides for a 36% increase in the generosity of disability insurance (DI) for claimants who are, as a result of their lack of skills and of the labour market conditions they face, deemed unlikely to find a job. The selection process for treatment is therefore conditional on having a low probability of employment, making evaluation of its effect intrinsically difficult. We exploit the fact that the benefit increase is only available to individuals aged 55 or older, estimating its impact using a regression discontinuity approach. Our first results indicate a large drop in employment for disabled individuals who receive the increase in the benefit. Testing for the linearity of covariates around the eligibility age threshold reveals that the age at which individuals start claiming DI is not continuous: the benefit increase appears to accelerate the entry rate of individuals aged 55 or over. We obtain new estimates excluding this group of claimants, and find that the policy decreases the employment probability by 8%. We conclude that the observed DI generosity elasticity of 0.22 on labour market participation is mostly due to income effects since benefit receipt is not work contingent in the system studied.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Public Economics.

Volume (Year): 96 (2012)
Issue (Month): 1 ()
Pages: 198-210

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Handle: RePEc:eee:pubeco:v:96:y:2012:i:1:p:198-210

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Web page: http://www.elsevier.com/locate/inca/505578

Related research

Keywords: Disability insurance; Labour market participation; Income effect; Regression discontinuity;

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  1. David S. Lee & Thomas Lemieux, 2009. "Regression Discontinuity Designs in Economics," NBER Working Papers 14723, National Bureau of Economic Research, Inc.
  2. Ours, J.C. van, 2006. "Leaving "Hotel California": How Incentives Affect Flows of Benefit Recipients in the Netherlands," Discussion Paper 2006-116, Tilburg University, Center for Economic Research.
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Cited by:
  1. Silva, José I. & Vall-Castello, Judit, 2012. "Why Are So Many Disabled Individuals Not Working in Spain? A Job Search Approach," IZA Discussion Papers 6317, Institute for the Study of Labor (IZA).
  2. Cueto, Begona & Miguel Á., Malo, 2014. "Do partial disability pensions close the earnings gap?," MPRA Paper 55920, University Library of Munich, Germany.
  3. Silva, José I. & Vall-Castello, Judit, 2012. "Evaluating the Impact of a Reduction in the Generosity of Disability Benefits: The 2008 Spanish Reform," IZA Discussion Papers 6482, Institute for the Study of Labor (IZA).

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