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Measuring the (income) effect of disability insurance generosity on labour market participation

  • Marie, Olivier
  • Vall Castello, Judit

We analyze the employment effect of a law that provides for a 36% increase in the generosity of disability insurance (DI) for claimants who are, as a result of their lack of skills and of the labour market conditions they face, deemed unlikely to find a job. The selection process for treatment is therefore conditional on having a low probability of employment, making evaluation of its effect intrinsically difficult. We exploit the fact that the benefit increase is only available to individuals aged 55 or older, estimating its impact using a regression discontinuity approach. Our first results indicate a large drop in employment for disabled individuals who receive the increase in the benefit. Testing for the linearity of covariates around the eligibility age threshold reveals that the age at which individuals start claiming DI is not continuous: the benefit increase appears to accelerate the entry rate of individuals aged 55 or over. We obtain new estimates excluding this group of claimants, and find that the policy decreases the employment probability by 8%. We conclude that the observed DI generosity elasticity of 0.22 on labour market participation is mostly due to income effects since benefit receipt is not work contingent in the system studied.

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Article provided by Elsevier in its journal Journal of Public Economics.

Volume (Year): 96 (2012)
Issue (Month): 1 ()
Pages: 198-210

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Handle: RePEc:eee:pubeco:v:96:y:2012:i:1:p:198-210
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  17. Staubli, Stefan, 2011. "The impact of stricter criteria for disability insurance on labor force participation," Journal of Public Economics, Elsevier, vol. 95(9-10), pages 1223-1235, October.
  18. Lalive, Rafael & Wuellrich, Jean-Philippe & Zweimüller, Josef, 2009. "Do Financial Incentives for Firms Promote Employment of Disabled Workers? A Regression Discontinuity Approach," CEPR Discussion Papers 7373, C.E.P.R. Discussion Papers.
  19. Till von Wachter & Jae Song & Joyce Manchester, 2011. "Trends in Employment and Earnings of Allowed and Rejected Applicants to the Social Security Disability Insurance Program," American Economic Review, American Economic Association, vol. 101(7), pages 3308-29, December.
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  24. van Ours, J.C., 2006. "Leaving "Hotel California" : How Incentives Affect Flows of Benefit Recipients in the Netherlands," Discussion Paper 2006-116, Tilburg University, Center for Economic Research.
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