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The Reservation Wage Theory, Vocational Rehabilitation and the Return to Work of Disabled Employees

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Author Info
Jan Høgelund (Danish National Institute of Social Research)
Anders Holm (Department of Sociology, University of Copenhagen)

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Abstract

Previous studies find that participation in educational measures does not increase sick-listed em-ployees’ chance of returning to work. This is surprising because education is supposed to increase human capital and raise productivity. However, a higher productivity may make the participants raise their reservation wage. Therefore, it is possible that educational measures increase the chance of returning to work in high pay jobs but reduce the chance of returning to work in low pay jobs. To test this hypothesis, we use panel data of 671 long-term sick-listed employees to estimate a random effects hazards rate model, with returning to work in high paid jobs and low-medium paid jobs, re-spectively, as the two outcomes. Our findings do not support the reservation wage hypothesis. We find that while participation in education significantly increases the probability of returning to work in medium or low paid jobs, it does not affect the probability of resuming work in high paid jobs.

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Paper provided by University of Copenhagen. Department of Economics. Centre for Applied Microeconometrics in its series CAM Working Papers with number 2006-07.

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Handle: RePEc:kud:kuieca:2006_07

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Heckman, James & Singer, Burton, 1984. "A Method for Minimizing the Impact of Distributional Assumptions in Econometric Models for Duration Data," Econometrica, Econometric Society, vol. 52(2), pages 271-320, March. [Downloadable!] (restricted)
  2. Janet Currie & Brigitte C. Madrian, 1998. "Health, Health Insurance and the Labor Market," JCPR Working Papers 27, Northwestern University/University of Chicago Joint Center for Poverty Research.
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  3. Frölich, Markus & Heshmati, Almas & Lechner, Michael, 2000. "A Microeconometric Evaluation of Rehabilitation of Long-term Sickness in Sweden," Working Paper Series in Economics and Finance 373, Stockholm School of Economics, revised 03 Apr 2000.
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  4. Heshmati, Almas & Engström, Lars-Gunnar, 1999. "Estimating the Effects of Vocational Rehabilitation Programs in Sweden," Working Paper Series in Economics and Finance 293, Stockholm School of Economics, revised 07 May 1999.
  5. Johansson, Per & Skedinger, Per, 2005. "Are objective, official measures of disability reliable?," Working Paper Series 2005:14, IFAU - Institute for Labour Market Policy Evaluation. [Downloadable!]
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  6. Aakvik, Arild & Heckman, James J. & Vytlacil, Edward J., 2005. "Estimating treatment effects for discrete outcomes when responses to treatment vary: an application to Norwegian vocational rehabilitation programs," Journal of Econometrics, Elsevier, vol. 125(1-2), pages 15-51. [Downloadable!] (restricted)
  7. 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. [Downloadable!] (restricted)
  8. LaLonde, Robert J, 1995. "The Promise of Public Sector-Sponsored Training Programs," Journal of Economic Perspectives, American Economic Association, vol. 9(2), pages 149-68, Spring. [Downloadable!] (restricted)
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  1. Henning Bach & Nabanita Datta Gupta & Jan Høgelund, 2007. "Employment Effects of Educational Measures for Work-Injured People," IZA Discussion Papers 2657, Institute for the Study of Labor (IZA). [Downloadable!]
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