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Disability Insurance Benefits and Labor Supply

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  • Jonathan Gruber

Abstract

A critical input for assessing the optimal size of disability insurance programs is the elasticity of labor force participation with respect to the generosity of benefits. Unfortunately, this parameter has been difficult to estimate in the context of the U.S. disability insurance program since all workers face an identical benefits schedule. I surmount this problem by studying the experience of Canada, which operates two distinct disability insurance programs: for Quebec and for the rest of Canada. The latter program raised its benefits by 36 percent in January 1987, whereas benefits in Quebec were constant. I find a sizable labor supply response to the policy change; my central estimates imply an elasticity of labor force nonparticipation with respect to disability insurance benefits of 0.280.36.

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Bibliographic Info

Article provided by University of Chicago Press in its journal Journal of Political Economy.

Volume (Year): 108 (2000)
Issue (Month): 6 (December)
Pages: 1162-1183

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Handle: RePEc:ucp:jpolec:v:108:y:2000:i:6:p:1162-1183

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  1. Howard P. Marvel, 1982. "An Economic Analysis of the Operation of Social Security Disability Insurance," Journal of Human Resources, University of Wisconsin Press, vol. 17(3), pages 393-412.
  2. Jonathan Gruber & Jeffrey D. Kubik, 1994. "Disability Insurance Rejection Rates and the Labor Supply of Older Workers," NBER Working Papers 4941, National Bureau of Economic Research, Inc.
  3. Bound, John & Waidmann, Timothy, 1992. "Disability Transfers, Self-Reported Health, and the Labor Force Attachment of Older Men: Evidence from the Historical Record," The Quarterly Journal of Economics, MIT Press, vol. 107(4), pages 1393-419, November.
  4. Jonathan Gruber & Alan B. Krueger, 1990. "The Incidence of Mandated Employer-Provided Insurance: Lessons from Workers' Compensation Insurance," NBER Working Papers 3557, National Bureau of Economic Research, Inc.
  5. Diamond, Peter & Sheshinski, Eytan, 1995. "Economic aspects of optimal disability benefits," Journal of Public Economics, Elsevier, vol. 57(1), pages 1-23, May.
  6. Parsons, Donald O, 1980. "The Decline in Male Labor Force Participation," Journal of Political Economy, University of Chicago Press, vol. 88(1), pages 117-34, February.
  7. Martin Feldstein, 1995. "Tax Avoidance and the Deadweight Loss of the Income Tax," NBER Working Papers 5055, National Bureau of Economic Research, Inc.
  8. Summers, Lawrence H, 1989. "Some Simple Economics of Mandated Benefits," American Economic Review, American Economic Association, vol. 79(2), pages 177-83, May.
  9. Parsons, Donald O, 1991. "Self-Screening in Targeted Public Transfer Programs," Journal of Political Economy, University of Chicago Press, vol. 99(4), pages 859-76, August.
  10. Haveman, Robert H & Wolfe, Barbara L, 1984. "The Decline in Male Labor Force Participation: Comment," Journal of Political Economy, University of Chicago Press, vol. 92(3), pages 532-41, June.
  11. Jonathan S. Leonard, 1985. "Labor Supply Incentives and Disincentives for the Disabled," NBER Working Papers 1744, National Bureau of Economic Research, Inc.
  12. Maki, Dennis R, 1993. "The Economic Implications of Disability Insurance in Canada," Journal of Labor Economics, University of Chicago Press, vol. 11(1), pages S148-69, January.
  13. Don Fullerton, 1989. "If Labor is Inelastic, Are Taxes Still Distorting?," NBER Working Papers 2810, National Bureau of Economic Research, Inc.
  14. Jonathan Gruber, 1995. "The Incidence of Payroll Taxation: Evidence from Chile," NBER Working Papers 5053, National Bureau of Economic Research, Inc.
  15. Robin L. Lumsdaine & David A. Wise, 1994. "Aging and Labor Force Participation: A Review of Trends and Explanations," NBER Chapters, in: Aging in the United States and Japan: Economic Trends, pages 7-42 National Bureau of Economic Research, Inc.
  16. Gruber, Jonathan, 1994. "The Incidence of Mandated Maternity Benefits," American Economic Review, American Economic Association, vol. 84(3), pages 622-41, June.
  17. Parsons, Donald O, 1991. "The Health and Earnings of Rejected Disability Insurance Applicants: Comment," American Economic Review, American Economic Association, vol. 81(5), pages 1419-26, December.
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