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Why Are So Many Disabled Individuals Not Working in Spain? A Job Search Approach

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Author Info

  • Silva, José I.

    ()
    (University of Kent)

  • Vall-Castello, Judit

    ()
    (Universitat de Girona)

Abstract

Unlike other disability systems in developed economies, the Spanish system allows partially disabled individuals to work while receiving disability benefits. The puzzle is, however, that employment rates in this group of individuals are very low. The aim of this paper is to understand the incentives and disincentives to work provided by the partial disability scheme in Spain. We first present a theoretical job search model for partially disabled individuals and then estimate a complementary log-log duration model. According to both models, the probability of finding a job falls with the level of disability, the age at which the individual starts receiving disability benefits, and the increase in the local unemployment rate. Moreover, as a result of an increase in the level of disability benefits we find a strong substitution effect that reduces the probability of disabled individuals older than 55 years finding a job to almost zero, in both of the two models. We simulate that the strong substitution effect would be replaced by an equally large income effect even if the increase in the benefits would not be suspended if the individual finds a job.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 6317.

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Length: 30 pages
Date of creation: Jan 2012
Date of revision:
Handle: RePEc:iza:izadps:dp6317

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Related research

Keywords: job search model; disability benefits; duration analysis;

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References

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  1. Vall Castello, Judit, 2012. "Promoting employment of disabled women in Spain; Evaluating a policy," Labour Economics, Elsevier, vol. 19(1), pages 82-91.
  2. Marie Olivier & Vall Castello Judit, 2011. "Measuring the (Income) Effect of Disability Insurance Generosity on Labour Market Participation," Research Memorandum 050, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
  3. Boyle, Melissa A. & Lahey, Joanna N., 2010. "Health insurance and the labor supply decisions of older workers: Evidence from a U.S. Department of Veterans Affairs expansion," Journal of Public Economics, Elsevier, vol. 94(7-8), pages 467-478, August.
  4. David H. Autor & Mark G. Duggan, 2006. "The Growth in the Social Security Disability Rolls: A Fiscal Crisis Unfolding," Journal of Economic Perspectives, American Economic Association, vol. 20(3), pages 71-96, Summer.
  5. Judit Vall Castello, 2010. "Promoting Employment of Disabled Women in Spain; Evaluating a Policy," Working Papers 2010-10, FEDEA.
  6. Hugo Ben�tez-Silva & Frank Heiland, 2007. "The social security earnings test and work incentives," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 26(3), pages 527-555.
  7. David H. Autor & Mark G. Duggan & David S. Lyle, 2011. "Battle Scars? The Puzzling Decline in Employment and Rise in Disability Receipt among Vietnam Era Veterans," American Economic Review, American Economic Association, vol. 101(3), pages 339-44, May.
  8. Barbara Petrongolo & Christopher A. Pissarides, 2000. "Looking Into the Black Box: A Survey of the Matching Function," CEP Discussion Papers dp0470, Centre for Economic Performance, LSE.
  9. Postel-Vinay, Fabien & Robin, Jean-Marc, 2002. "Equilibrium Wage Dispersion with Worker and Employer Heterogeneity," CEPR Discussion Papers 3548, C.E.P.R. Discussion Papers.
  10. Addison, John T. & Centeno, Mario & Portugal, Pedro, 2004. "Key Elasticities in Job Search Theory: International Evidence," IZA Discussion Papers 1314, Institute for the Study of Labor (IZA).
  11. David H. Autor & Mark G. Duggan, 2007. "Distinguishing Income from Substitution Effects in Disability Insurance," American Economic Review, American Economic Association, vol. 97(2), pages 119-124, May.
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Cited by:
  1. 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).
  2. Jose I. Silva & Judit Vall-Castello, 2013. "Partial Disability System and Labor Market Adjustment: The Case of Spain," Upjohn Working Papers and Journal Articles 13-201, W.E. Upjohn Institute for Employment Research.

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