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The Labor Supply Consequences of Employment-Limiting Social Insurance Benefits: New Tests for Income Effects

Listed author(s):
  • Hyatt Henry R

    ()

    (U.S. Census Bureau)

Studies of moral hazard in employment-limiting social insurance programs such as Unemployment Insurance or Workers Compensation have demonstrated that higher benefits discourage work, emphasizing the price distortion inherent in benefit provision. Utilizing administrative data linking Workers’ Compensation claim records to wage records from an Unemployment Insurance payroll tax database, I explore a different explanation and implement tests for “income effects” that exploit the fact that claimants no longer experience a distorted price of non-employment after an employment-limiting benefit ends. A pair of legislative changes to a Workers’ Compensation benefit rate show little or no evidence of income effects and moderate evidence of income effects, respectively.

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Article provided by De Gruyter in its journal The B.E. Journal of Economic Analysis & Policy.

Volume (Year): 11 (2011)
Issue (Month): 1 (May)
Pages: 1-31

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Handle: RePEc:bpj:bejeap:v:11:y:2011:i:1:n:25
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  1. Moffitt, Robert, 1986. "The Econometrics of Piecewise-Linear Budget Constraints: A Survey and Exposition of the Maximum Likelihood Method," Journal of Business & Economic Statistics, American Statistical Association, vol. 4(3), pages 317-328, July.
  2. Meyer, Bruce D & Viscusi, W Kip & Durbin, David L, 1995. "Workers' Compensation and Injury Duration: Evidence from a Natural Experiment," American Economic Review, American Economic Association, vol. 85(3), pages 322-340, June.
  3. Krueger, Alan B. & Meyer, Bruce D., 2002. "Labor supply effects of social insurance," Handbook of Public Economics,in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 4, chapter 33, pages 2327-2392 Elsevier.
  4. Raj Chetty, 2008. "Moral Hazard vs. Liquidity and Optimal Unemployment Insurance," NBER Working Papers 13967, National Bureau of Economic Research, Inc.
  5. Alan B. Krueger, 1990. "Worker's Compensation Insurance and the Duration of Workplace Injuries," Working Papers 641, Princeton University, Department of Economics, Industrial Relations Section..
  6. 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.
  7. Terry Thomason & Timothy P. Schmidle & John F. Burton Jr., 2001. "Workers' Compensation: Benefits, Costs, and Safety under Alternative Insurance Arrangements," Books from Upjohn Press, W.E. Upjohn Institute for Employment Research, number wc, June.
  8. Alan B. Krueger, 1990. "Workers' Compensation Insurance and the Duration of Workplace Injuries," NBER Working Papers 3253, National Bureau of Economic Research, Inc.
  9. Frank Neuhauser & Steven Raphael, 2004. "The Effect of an Increase in Worker's Compensation Benefits on the Duration and Frequency of Benefit Receipt," The Review of Economics and Statistics, MIT Press, vol. 86(1), pages 288-302, February.
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