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Making disability work? The effects of financial incentives on partially disabled workers

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  • Koning, Pierre
  • van Sonsbeek, Jan-Maarten

Abstract

This study uses longitudinal administrative data from the Netherlands to explore the responsiveness of disabled workers to financial incentives. We focus on workers with partial Disability Insurance (DI) benefits that have substantial residual work capacities. When the first phase of benefit entitlement to DI has expired, these workers experience a dramatic drop in income if they do not employ their residual income capacity. Entitlement periods to the first phase of DI benefits vary across individuals. This enables us to estimate the impact effect of this change in work incentives on the incidence of work, on wage earnings and on full work resumption. Based on the estimation results, the implied labor force non-participation elasticity rate equals 0.12. Response estimates are highest among young DI recipients, who typically have shorter entitlement periods to the more generous first phase of DI benefits. The incentive change has a limited impact on wage earnings of partially disabled workers and no significant impact on full work resumption.

Suggested Citation

  • Koning, Pierre & van Sonsbeek, Jan-Maarten, 2017. "Making disability work? The effects of financial incentives on partially disabled workers," Labour Economics, Elsevier, vol. 47(C), pages 202-215.
  • Handle: RePEc:eee:labeco:v:47:y:2017:i:c:p:202-215
    DOI: 10.1016/j.labeco.2017.05.008
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    Cited by:

    1. Koning Pierre & Vethaak Heike, 2021. "Decomposing Employment Trends of Disabled Workers," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 21(4), pages 1217-1255, October.
    2. Hjellset Alne, Ragnar, 2018. "Economic incentives, disability insurance and labor supply," Working Papers in Economics 2/18, University of Bergen, Department of Economics, revised 14 Jun 2018.
    3. Koning, Pierre & Vethaak, Heike, 2019. "Decomposing Employment Trends of Disabled Workers," IZA Discussion Papers 12775, Institute of Labor Economics (IZA).
    4. Pierre Koning & Paul Muller & Roger Prudon, 2020. "Do Disability Benefits Hinder Work Resumption After Recovery?," Tinbergen Institute Discussion Papers 20-084/V, Tinbergen Institute.
    5. Garcia-Mandicó, Sílvia & García-Gómez, Pilar & Gielen, Anne C. & O’Donnell, Owen, 2020. "Earnings responses to disability insurance stringency," Labour Economics, Elsevier, vol. 66(C).
    6. Andersson, Josefine, 2018. "Financial incentives to work for disability insurance recipients - Sweden’s special rules for continuous deduction," Working Paper Series 2018:7, IFAU - Institute for Evaluation of Labour Market and Education Policy.

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    More about this item

    Keywords

    I38; I13; Disability insurance; Financial incentives;
    All these keywords.

    JEL classification:

    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • H53 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Welfare Programs

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