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Retirement Round-bout: Early Exit Channels and Disability Applications

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  • Tuulia Hakola
  • Maarten Lindeboom

Abstract

Disability pension benefits are governed by an application-approval procedure. Therefore, explanatory variables can have different effects on the application probability and on the actual disability transition probability. If the application phase is not considered, the estimation ignores the rejection probability and the possible difference in timing of the application and the transition. As many data sets don't have information on multiple spells of unemployment, most of the estimations also ignore the fact that many aged unemployed experience multiple transitions in and out from unemployment at the end of the career. We show that dividing the disability transition to the application phase and the transition phase can alter the results. If we lump the two phases together, we are likely to get the estimates in the middle. Because the policy to affect the application probability can differ from the needed policy to affect the transitions, it is important to take this difference into account. The multiple spells of unemployment at the end of the career, in contrast, didn't seem to make a huge difference in the estimations. We found that single spell models capture quite well the effects of the explanatory variables on the unemployment probability.

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Bibliographic Info

Paper provided by Government Institute for Economic Research Finland (VATT) in its series Discussion Papers with number 262.

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Date of creation: 31 Oct 2001
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Handle: RePEc:fer:dpaper:262

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Related research

Keywords: Early exit; disability pension applications; disability rejections; unemployment of the aged;

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References

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  1. Parsons, Donald O, 1984. "Disability Insurance and Male Labor Force Participation: A Response," Journal of Political Economy, University of Chicago Press, vol. 92(3), pages 542-49, June.
  2. Bound, John, 1991. "The Health and Earnings of Rejected Disability Insurance Applicants: Reply," American Economic Review, American Economic Association, vol. 81(5), pages 1427-34, December.
  3. Tuulia Hakola, 1999. "Race for Retirement," Research Reports 60, Government Institute for Economic Research Finland (VATT).
  4. Courtney Coile & Jonathan Gruber, 2001. "Social Security Incentives for Retirement," NBER Chapters, in: Themes in the Economics of Aging, pages 311-354 National Bureau of Economic Research, Inc.
  5. 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.
  6. Van den Berg, Gerard J., 2000. "Duration Models: Specification, Identification, and Multiple Durations," MPRA Paper 9446, University Library of Munich, Germany.
  7. John Bound, 1989. "The Health and Earnings of Rejected Disability Insurance Applicants," NBER Working Papers 2816, National Bureau of Economic Research, Inc.
  8. Stock, James H & Wise, David A, 1990. "Pensions, the Option Value of Work, and Retirement," Econometrica, Econometric Society, vol. 58(5), pages 1151-80, September.
  9. 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.
  10. Kreider, Brent & Riphahn, Regina T., 1998. "Applications to the U.S. Disability System: A Semiparametric Approach for Men and Women," IZA Discussion Papers 17, Institute for the Study of Labor (IZA).
  11. Tomi Kyyrä, 1999. "Post-Unemployment Wages and Economic Incentives to Exit from Unemployment," Research Reports 56, Government Institute for Economic Research Finland (VATT).
  12. 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.
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