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Social Support Substitution and the Earnings Rebound: Evidence from a Regression Discontinuity in Disability Insurance Reform

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Author Info

  • Borghans, Lex

    () (Maastricht University)

  • Gielen, Anne C.

    () (Erasmus University Rotterdam)

  • Luttmer, Erzo F.P.

    () (Dartmouth College)

Abstract

In this paper, we exploit a cohort discontinuity in the stringency of the 1993 Dutch disability reforms to obtain causal estimates of the effects of decreased generosity of disability insurance (DI) on behavior of existing DI recipients. We find evidence of substantial “social support substitution”: individuals on average offset a euro of lost DI benefits by collecting 31 cents more from other social assistance programs. This benefit-substitution effect declines somewhat over time, but is still a significant 20% eight years later. Individuals also exhibit a strong rebound in earnings: labor earnings increase by 62 cents on average per euro of lost DI benefits. This is novel evidence of substantial remaining earnings capacity in a sample of long-term claimants of DI. On average, individuals make up for almost the entire DI benefit reduction through increases in other forms of social assistance and in labor earnings.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 5412.

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Length: 56 pages
Date of creation: Dec 2010
Date of revision:
Handle: RePEc:iza:izadps:dp5412

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Related research

Keywords: welfare; income assistance; social insurance; benefit substitution; spillover effects; crowd out; regression discontinuity; administrative data;

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References

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  1. 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.
  2. de Jong, Philip & Lindeboom, Maarten & van der Klaauw, Bas, 2006. "Screening Disability Insurance Applications," IZA Discussion Papers 1981, Institute for the Study of Labor (IZA).
  3. A. Bovenberg, 2000. "Reforming Social Insurance in The Netherlands," International Tax and Public Finance, Springer, vol. 7(3), pages 345-368, May.
  4. Guido Imbens & Karthik Kalyanaraman, 2010. "Optimal bandwidth choice for the regression discontinuity estimator," CeMMAP working papers CWP05/10, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
  5. 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.
  6. David S. Lee & Thomas Lemieux, 2009. "Regression Discontinuity Designs in Economics," NBER Working Papers 14723, National Bureau of Economic Research, Inc.
  7. Lucie Schmidt & Purvi Sevak, 2000. "AFDC, SSI, and Welfare Reform Aggressiveness: Caseload Reductions vs. Caseload Shifting," Department of Economics Working Papers 2002-03, Department of Economics, Williams College.
  8. Guido Imbens & Thomas Lemieux, 2007. "Regression Discontinuity Designs: A Guide to Practice," NBER Working Papers 13039, National Bureau of Economic Research, Inc.
  9. Jonathan Gruber, 2000. "Disability Insurance Benefits and Labor Supply," Journal of Political Economy, University of Chicago Press, vol. 108(6), pages 1162-1183, December.
  10. 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.
  11. 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.
  12. David H. Autor & Mark G. Duggan, 2003. "The Rise In The Disability Rolls And The Decline In Unemployment," The Quarterly Journal of Economics, MIT Press, vol. 118(1), pages 157-205, February.
  13. Mark G. Duggan & Melissa Schettini Kearney, 2007. "The impact of child SSI enrollment on household outcomes," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 26(4), pages 861-886.
  14. Bowen Garrett & Sherry Glied, 2000. "Does state AFDC generosity affect child SSI participation?," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 19(2), pages 275-295.
  15. Cullen, Julie Berry & Gruber, Jonathan, 2000. "Does Unemployment Insurance Crowd Out Spousal Labor Supply?," Journal of Labor Economics, University of Chicago Press, vol. 18(3), pages 546-72, July.
  16. Hahn, Jinyong & Todd, Petra & Van der Klaauw, Wilbert, 2001. "Identification and Estimation of Treatment Effects with a Regression-Discontinuity Design," Econometrica, Econometric Society, vol. 69(1), pages 201-09, January.
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Cited by:
  1. Lukas Inderbitzin & Stefan Staubli & Josef Zweimüller, 2013. "Extended unemployment benefits and early retirement: program complementarity and program substitution," ECON - Working Papers 119, Department of Economics - University of Zurich.
  2. Gijs Roelofs & Daniel van Vuuren, 2011. "The decentralization of Social Assistance and the rise of Disability Insurance enrolment," CPB Discussion Paper 185, CPB Netherlands Bureau for Economic Policy Analysis.
  3. Staubli, Stefan & Zweimüller, Josef, 2011. "Does Raising the Retirement Age Increase Employment of Older Workers?," IZA Discussion Papers 5863, Institute for the Study of Labor (IZA).
  4. Engström, Per & Hägglund, Pathric & Johansson, Per, 2012. "Early interventions and disability insurance: Experience from a field experiment," Working Paper Series, Center for Labor Studies 2012:10, Uppsala University, Department of Economics.

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