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How financial incentives induce disability insurance recipients to return to work

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Author Info

  • Andreas Ravndal Kostøl
  • Magne Mogstad

    ()
    (Statistics Norway)

Abstract

Disability Insurance (DI) programs have long been criticized by economists for apparent work disincentives. Some countries have recently modified their programs such that DI recipients are allowed to keep some of their benefits if they return to work, and other countries are considering similar return-to-work policies. However, there is little empirical evidence of the effectiveness of programs that incentivize the return to work by DI recipients. Using a local randomized experiment that arises from a sharp discontinuity in DI policy in Norway, we provide transparent and credible identification of how financial incentives induce DI recipients to return to work. We find that many DI recipients have considerable capacity to work that can be effectively induced by providing financial work incentives. We also show that providing work incentives to DI recipients may both increase their disposable income and reduce program costs. Our findings also suggest that tar-geted policies may be the most effective in encouraging DI recipients to return to work.

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Bibliographic Info

Paper provided by Research Department of Statistics Norway in its series Discussion Papers with number 685.

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Date of creation: Mar 2012
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Handle: RePEc:ssb:dispap:685

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Keywords: Disability insurance; financial incentives; labor supply; regression discontinuity design;

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References

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Cited by:
  1. Rolf Aaberge & Lennart Flood, 2013. "U.S. versus Sweden. The effect of alternative in-work tax credit policies on labour supply of single mothers," Discussion Papers 761, Research Department of Statistics Norway.
  2. Ziebarth, Nicolas R., 2013. "Long-term absenteeism and moral hazard—Evidence from a natural experiment," Labour Economics, Elsevier, vol. 24(C), pages 277-292.
  3. Fevang, Elisabeth & Hardoy, Inés & Røed, Knut, 2013. "Getting Disabled Workers Back to Work: How Important Are Economic Incentives?," IZA Discussion Papers 7137, Institute for the Study of Labor (IZA).

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