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Disability Insurance Benefits and Labor Supply

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  • Jonathan Gruber

Abstract

A critical input for assessing the optimal size of disability insurance programs is the elasticity of labor force participation with respect to the generosity of benefits. Unfortunately, this parameter has been difficult to estimate in the context of the U.S. disability insurance program since all workers face an identical benefits schedule. I surmount this problem by studying the experience of Canada, which operates two distinct disability insurance programs: for Quebec and for the rest of Canada. The latter program raised its benefits by 36 percent in January 1987, whereas benefits in Quebec were constant. I find a sizable labor supply response to the policy change; my central estimates imply an elasticity of labor force nonparticipation with respect to disability insurance benefits of 0.280.36.

Suggested Citation

  • Jonathan Gruber, 2000. "Disability Insurance Benefits and Labor Supply," Journal of Political Economy, University of Chicago Press, vol. 108(6), pages 1162-1183, December.
  • Handle: RePEc:ucp:jpolec:v:108:y:2000:i:6:p:1162-1183
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    References listed on IDEAS

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    1. Parsons, Donald O, 1980. "The Decline in Male Labor Force Participation," Journal of Political Economy, University of Chicago Press, vol. 88(1), pages 117-134, February.
    2. John Bound & Timothy Waidmann, 1992. "Disability Transfers, Self-Reported Health, and the Labor Force Attachment of Older Men: Evidence from the Historical Record," The Quarterly Journal of Economics, Oxford University Press, vol. 107(4), pages 1393-1419.
    3. Jonathan Gruber & Alan B. Krueger, 1991. "The Incidence of Mandated Employer-Provided Insurance: Lessons from Workers' Compensation Insurance," NBER Chapters,in: Tax Policy and the Economy, Volume 5, pages 111-144 National Bureau of Economic Research, Inc.
    4. Howard P. Marvel, 1982. "An Economic Analysis of the Operation of Social Security Disability Insurance," Journal of Human Resources, University of Wisconsin Press, vol. 17(3), pages 393-412.
    5. Robin L. Lumsdaine & David A. Wise, 1994. "Aging and Labor Force Participation: A Review of Trends and Explanations," NBER Chapters,in: Aging in the United States and Japan: Economic Trends, pages 7-42 National Bureau of Economic Research, Inc.
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    12. Jonathan S. Leonard, 1985. "Labor Supply Incentives and Disincentives for the Disabled," NBER Working Papers 1744, National Bureau of Economic Research, Inc.
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    JEL classification:

    • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies

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