IDEAS home Printed from https://ideas.repec.org/a/spr/empeco/v58y2020i5d10.1007_s00181-018-1587-4.html
   My bibliography  Save this article

Disability insurance benefits and labor supply decisions: evidence from a discontinuity in benefit awards

Author

Listed:
  • Tobias Müller

    (University of Bern
    Zurich University of Applied Sciences (ZHAW))

  • Stefan Boes

    (University of Lucerne)

Abstract

The effect of disability insurance (DI) benefits on the labor supply of individuals is a disputed topic in both academia and policy. We identify the impact of DI benefits on working full-time, working part-time or being out of the labor force by exploiting a discontinuity in the DI benefit award rate in Switzerland above the age of 56. Using rich survey data and a discrete endogenous switching model, we find that DI benefit receipt increases the probability of working part-time by approximately 32% points, decreases the probability of working full-time by approximately 35% points and has little effect on the probability of being out of the labor force for the average beneficiary. Looking at the treatment effect distribution, we find that male, middle- to high-income and relatively healthy DI beneficiaries are more likely to adjust their labor supply from full-time to part-time, whereas women, low-income and ill beneficiaries tend to drop out of the labor market. Our results shed new light on the mechanisms explaining low DI outflow rates and may help better target interventions.

Suggested Citation

  • Tobias Müller & Stefan Boes, 2020. "Disability insurance benefits and labor supply decisions: evidence from a discontinuity in benefit awards," Empirical Economics, Springer, vol. 58(5), pages 2513-2544, May.
    • Handle: RePEc:spr:empeco:v:58:y:2020:i:5:d:10.1007_s00181-018-1587-4
    DOI: 10.1007/s00181-018-1587-4
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s00181-018-1587-4
    File Function: Abstract
    Download Restriction: Access to the full text of the articles in this series is restricted.
    File URL: https://libkey.io/10.1007/s00181-018-1587-4?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Shu, Pian, 2015. "Asset accumulation and labor force participation of disability insurance applicants," Journal of Public Economics, Elsevier, vol. 129(C), pages 26-40.
    2. Parsons, Donald O, 1980. "Racial Trends in Male Labor Force Participation," American Economic Review, American Economic Association, vol. 70(5), pages 911-920, December.
    3. Parsons, Donald O, 1980. "The Decline in Male Labor Force Participation," Journal of Political Economy, University of Chicago Press, vol. 88(1), pages 117-134, February.
    4. Philip de Jong & Maarten Lindeboom & Bas van der Klaauw, 2011. "Screening Disability Insurance Applications," Journal of the European Economic Association, European Economic Association, vol. 9(1), pages 106-129, February.
    5. Kauer, Lukas, 2014. "The Effect of Cutting Disability Insurance Benefits on Labor Supply in Households," Economics Working Paper Series 1401, University of St. Gallen, School of Economics and Political Science.
    6. Chen, Susan & van der Klaauw, Wilbert, 2008. "The work disincentive effects of the disability insurance program in the 1990s," Journal of Econometrics, Elsevier, vol. 142(2), pages 757-784, February.
    7. Bhat, Chandra R., 2001. "Quasi-random maximum simulated likelihood estimation of the mixed multinomial logit model," Transportation Research Part B: Methodological, Elsevier, vol. 35(7), pages 677-693, August.
    8. David S. Lee & Thomas Lemieux, 2009. "Regression Discontinuity Designs In Economics," Working Papers 1118, Princeton University, Department of Economics, Industrial Relations Section..
    9. Christian Gouriéroux & Alain Monfort, 1991. "Simulation Based Inference in Models with Heterogeneity," Annals of Economics and Statistics, GENES, issue 20-21, pages 69-107.
    10. Lorenzo Cappellari & Stephen P. Jenkins, 2006. "Calculation of multivariate normal probabilities by simulation, with applications to maximum simulated likelihood estimation," Stata Journal, StataCorp LP, vol. 6(2), pages 156-189, June.
    11. Gruber, Jonathan & Kubik, Jeffrey D., 1997. "Disability insurance rejection rates and the labor supply of older workers," Journal of Public Economics, Elsevier, vol. 64(1), pages 1-23, April.
    12. Keane, Michael P, 1994. "A Computationally Practical Simulation Estimator for Panel Data," Econometrica, Econometric Society, vol. 62(1), pages 95-116, January.
    13. Bound, John & Burkhauser, Richard V., 1999. "Economic analysis of transfer programs targeted on people with disabilities," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 51, pages 3417-3528, Elsevier.
    14. David S. Lee & Thomas Lemieux, 2010. "Regression Discontinuity Designs in Economics," Journal of Economic Literature, American Economic Association, vol. 48(2), pages 281-355, June.
    15. Jonathan Gruber, 2000. "Disability Insurance Benefits and Labor Supply," Journal of Political Economy, University of Chicago Press, vol. 108(6), pages 1162-1183, December.
    16. Monika Bütler & Eva Deuchert & Michael Lechner & Stefan Staubli & Petra Thiemann, 2015. "Financial work incentives for disability benefit recipients: lessons from a randomised field experiment," IZA Journal of Labor Policy, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 4(1), pages 1-18, December.
    17. Eric French & Jae Song, 2014. "The Effect of Disability Insurance Receipt on Labor Supply," American Economic Journal: Economic Policy, American Economic Association, vol. 6(2), pages 291-337, May.
    18. Train,Kenneth E., 2009. "Discrete Choice Methods with Simulation," Cambridge Books, Cambridge University Press, number 9780521766555, January.
    19. David Roodman, 2011. "Fitting fully observed recursive mixed-process models with cmp," Stata Journal, StataCorp LP, vol. 11(2), pages 159-206, June.
    20. Geweke, John & Keane, Michael P & Runkle, David, 1994. "Alternative Computational Approaches to Inference in the Multinomial Probit Model," The Review of Economics and Statistics, MIT Press, vol. 76(4), pages 609-632, November.
    21. Bound, John, 1989. "The Health and Earnings of Rejected Disability Insurance Applicants," American Economic Review, American Economic Association, vol. 79(3), pages 482-503, June.
    22. Cai, Lixin, 2010. "The relationship between health and labour force participation: Evidence from a panel data simultaneous equation model," Labour Economics, Elsevier, vol. 17(1), pages 77-90, January.
    23. McCrary, Justin, 2008. "Manipulation of the running variable in the regression discontinuity design: A density test," Journal of Econometrics, Elsevier, vol. 142(2), pages 698-714, February.
    24. Keane, Michael P, 1992. "A Note on Identification in the Multinomial Probit Model," Journal of Business & Economic Statistics, American Statistical Association, vol. 10(2), pages 193-200, April.
    25. David H. Autor & Mark G. Duggan, 2003. "The Rise in the Disability Rolls and the Decline in Unemployment," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 118(1), pages 157-206.
    26. Marie, Olivier & Vall Castello, Judit, 2012. "Measuring the (income) effect of disability insurance generosity on labour market participation," Journal of Public Economics, Elsevier, vol. 96(1), pages 198-210.
    27. Moore, Timothy J., 2015. "The employment effects of terminating disability benefits," Journal of Public Economics, Elsevier, vol. 124(C), pages 30-43.
    28. Vassilis A. Hajivassiliou & Daniel L. McFadden, 1998. "The Method of Simulated Scores for the Estimation of LDV Models," Econometrica, Econometric Society, vol. 66(4), pages 863-896, July.
    29. Joshua D. Angrist & Jörn-Steffen Pischke, 2009. "Mostly Harmless Econometrics: An Empiricist's Companion," Economics Books, Princeton University Press, edition 1, number 8769.
    30. Karlström, Anders & Palme, Mårten & Svensson, Ingemar, 2008. "The employment effect of stricter rules for eligibility for DI: Evidence from a natural experiment in Sweden," Journal of Public Economics, Elsevier, vol. 92(10-11), pages 2071-2082, October.
    31. Staubli, Stefan, 2011. "The impact of stricter criteria for disability insurance on labor force participation," Journal of Public Economics, Elsevier, vol. 95(9-10), pages 1223-1235, October.
    32. repec:adr:anecst:y:1991:i:20-21:p:04 is not listed on IDEAS
    33. Andreas Ravndal Kostol & Magne Mogstad, 2014. "How Financial Incentives Induce Disability Insurance Recipients to Return to Work," American Economic Review, American Economic Association, vol. 104(2), pages 624-655, February.
    34. Vassilis A. Hajivassiliou & Daniel McFadden & Paul A. Ruud, 1994. "Simulation of Multivariate Normal Rectangle Probabilities: Theoretical and Computational Results," Cowles Foundation Discussion Papers 1021R, Cowles Foundation for Research in Economics, Yale University.
    35. Eva Frutos & Judit Castello, 2015. "Equal health, equal work? The role of disability benefits in employment after controlling for health status," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 16(3), pages 329-340, April.
    36. Michele Campolieti, 2004. "Disability Insurance Benefits and Labor Supply: Some Additional Evidence," Journal of Labor Economics, University of Chicago Press, vol. 22(4), pages 863-890, October.
    37. Alfonso Miranda & Sophia Rabe-Hesketh, 2006. "Maximum likelihood estimation of endogenous switching and sample selection models for binary, ordinal, and count variables," Stata Journal, StataCorp LP, vol. 6(3), pages 285-308, September.
    38. Bunch, David S., 1991. "Estimability in the Multinomial Probit Model," University of California Transportation Center, Working Papers qt1gf1t128, University of California Transportation Center.
    39. Bunch, David S., 1991. "Estimability in the multinomial probit model," Transportation Research Part B: Methodological, Elsevier, vol. 25(1), pages 1-12, February.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Sylvain Chareyron & Naomie Mahmoudi, 2022. "The effects of disability benefits on the employment of low-skilled youth: Evidence from France," Erudite Working Paper 2022-09, Erudite.
    2. Thomas Barnay & Éric Defebvre, 2021. "Working conditions and disabilities in French workers: a career-long retrospective study," Erudite Working Paper 2021-14, Erudite.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Müller, Tobias & Boes, Stefan, 2016. "Disability Insurance Benefits and Labor Supply Choices: Evidence from a Discontinuity in Benefit Awards," MPRA Paper 70957, University Library of Munich, Germany.
    2. Chiara Dal Bianco, 2019. "Labour Supply and Welfare Effects of Disability Insurance: A Survey," Italian Economic Journal: A Continuation of Rivista Italiana degli Economisti and Giornale degli Economisti, Springer;Società Italiana degli Economisti (Italian Economic Association), vol. 5(1), pages 161-189, March.
    3. Andreas Haller & Stefan Staubli & Josef Zweimüller, 2024. "Designing Disability Insurance Reforms: Tightening Eligibility Rules or Reducing Benefits?," Econometrica, Econometric Society, vol. 92(1), pages 79-110, January.
    4. Alexander Gelber & Timothy J. Moore & Alexander Strand, 2017. "The Effect of Disability Insurance Payments on Beneficiaries' Earnings," American Economic Journal: Economic Policy, American Economic Association, vol. 9(3), pages 229-261, August.
    5. Deuchert, Eva & Eugster, Beatrix, 2019. "Income and substitution effects of a disability insurance reform," Journal of Public Economics, Elsevier, vol. 170(C), pages 1-14.
    6. Deuchert, E. & Eugster, B., 2016. "Crawling Up the Cash Cliff? Behavioral Responses to a Disability Insurance Reform," Health, Econometrics and Data Group (HEDG) Working Papers 16/21, HEDG, c/o Department of Economics, University of York.
    7. Mathilde Godard & Pierre Koning & Maarten Lindeboom, 2020. "Application and Award Responses to Stricter Screening in Disability Insurance," Working Papers 2012, Groupe d'Analyse et de Théorie Economique Lyon St-Étienne (GATE Lyon St-Étienne), Université de Lyon.
    8. Lex Borghans & Anne C. Gielen & Erzo F. P. Luttmer, 2014. "Social Support Substitution and the Earnings Rebound: Evidence from a Regression Discontinuity in Disability Insurance Reform," American Economic Journal: Economic Policy, American Economic Association, vol. 6(4), pages 34-70, November.
    9. Andersson, Josefine, 2018. "Financial incentives to work for disability insurance recipients - Sweden’s special rules for continuous deduction," Working Paper Series 2018:7, IFAU - Institute for Evaluation of Labour Market and Education Policy.
    10. Mathilde Godard & Maarten Lindeboom & Pierre Koning, 2018. "Targeting disability insurance applications with screening," Post-Print halshs-01960488, HAL.
    11. Liebert, Helge, 2019. "Does external medical review reduce disability insurance inflow?," Journal of Health Economics, Elsevier, vol. 64(C), pages 108-128.
    12. Chiara Dal Bianco, 2023. "Disability Insurance and the Effects of Return-to-work Policies," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 49, pages 351-373, July.
    13. Barbara Broadway & Sonja C. Kassenboehmer, 2019. "Employment effects of job counseling for disability insurance recipients," Melbourne Institute Working Paper Series wp2019n18, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
    14. Moore, Timothy J., 2015. "The employment effects of terminating disability benefits," Journal of Public Economics, Elsevier, vol. 124(C), pages 30-43.
    15. Andreas Ravndal Kostol & Magne Mogstad, 2014. "How Financial Incentives Induce Disability Insurance Recipients to Return to Work," American Economic Review, American Economic Association, vol. 104(2), pages 624-655, February.
    16. Myhre, Andreas, 2021. "Intensive and Extensive Margin Labor Supply Responses to Kinks in Disability Insurance Programs," MPRA Paper 109547, University Library of Munich, Germany.
    17. Koning, Pierre & van Sonsbeek, Jan-Maarten, 2017. "Making disability work? The effects of financial incentives on partially disabled workers," Labour Economics, Elsevier, vol. 47(C), pages 202-215.
    18. Gordon B. Dahl & Anne C. Gielen, 2021. "Intergenerational Spillovers in Disability Insurance," American Economic Journal: Applied Economics, American Economic Association, vol. 13(2), pages 116-150, April.
    19. Hjellset Alne, Ragnar, 2018. "Economic incentives, disability insurance and labor supply," Working Papers in Economics 2/18, University of Bergen, Department of Economics, revised 14 Jun 2018.
    20. Matthew J. Hill & Jose I. Silva & Judit Vall Castello, 2019. "Act now: The effects of the 2008 Spanish disability reform," Health Economics, John Wiley & Sons, Ltd., vol. 28(7), pages 906-920, July.

    More about this item

    Keywords

    Disability insurance; Labor market participation; Fuzzy regression discontinuity design; Discrete endogenous switching models; Maximum simulated likelihood;
    All these keywords.

    JEL classification:

    • J2 - Labor and Demographic Economics - - Demand and Supply of Labor
    • C35 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions
    • C36 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Instrumental Variables (IV) Estimation

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:spr:empeco:v:58:y:2020:i:5:d:10.1007_s00181-018-1587-4. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.