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Disability Pensions and Labor Supply

  • Barbara Hanel

I investigate the incentive effects of disability pensions on the labor supply decision of the elderly in Germany. In the year 2001, a reform decreased the level of benefits and tightened the criteria of eligibility. The purpose of this paper is twofold: First, I estimate transition rates into disability retirement, both prior to and after the reform in order to evaluate the effect of the reform on retirement behavior. Second, I use the exogenous variation in (a) expected benefit levels and (b) expected benefit accruals that is caused by the reform, in order to obtain reliable estimates of individuals’ responses in retirement behavior to financial incentives. While health status and expected wages turn out to be important determinants of the decision to enter disability retirement, benefits have only a small effect.

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File URL: http://www.bgpe.de/texte/DP/086_hanel.pdf
File Function: First version, 2010
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Paper provided by Bavarian Graduate Program in Economics (BGPE) in its series Working Papers with number 086.

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Length: 37 pages
Date of creation: Jan 2010
Date of revision:
Handle: RePEc:bav:wpaper:086_hanel
Contact details of provider: Web page: http://www.bgpe.de/

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  1. Bratberg, Espen, 1999. " Disability Retirement in a Welfare State," Scandinavian Journal of Economics, Wiley Blackwell, vol. 101(1), pages 97-114, March.
  2. Sophia Rabe-Hesketh & Anders Skrondal & Andrew Pickles, 2004. "GLLAMM Manual," U.C. Berkeley Division of Biostatistics Working Paper Series 1160, Berkeley Electronic Press.
  3. Haveman, Robert & de Jong, Philip & Wolfe, Barbara, 1991. "Disability Transfers and the Work Decision of Older Men," The Quarterly Journal of Economics, MIT Press, vol. 106(3), pages 939-49, August.
  4. Brent Kreider & Regina T. Riphahn, 2000. "Explaining Applications to the U.S. Disability System: A Semiparametric Approach," Journal of Human Resources, University of Wisconsin Press, vol. 35(1), pages 82-115.
  5. Michele Campolieti, 2004. "Disability Insurance Benefits and Labor Supply: Some Additional Evidence," Journal of Labor Economics, University of Chicago Press, vol. 22(4), pages 863-890, October.
  6. Jonathan Gruber, 1996. "Disability Insurance Benefits and Labor Supply," NBER Working Papers 5866, National Bureau of Economic Research, Inc.
  7. Haveman, Robert H. & Wolfe, Barbara L., 1984. "Disability transfers and early retirement: a casual relationship?," Journal of Public Economics, Elsevier, vol. 24(1), pages 47-66, June.
  8. Parsons, Donald O, 1980. "The Decline in Male Labor Force Participation," Journal of Political Economy, University of Chicago Press, vol. 88(1), pages 117-34, February.
  9. Courtney Coile & Jonathan Gruber, 2000. "Social Security and Retirement," NBER Working Papers 7830, National Bureau of Economic Research, Inc.
  10. R. T. Riphahn, 1999. "Disability retirement among German men in the 1980s," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 52(4), pages 628-647, July.
  11. James H. Stock & David A. Wise, 1988. "Pensions, The Option Value of Work, and Retirement," NBER Working Papers 2686, National Bureau of Economic Research, Inc.
  12. Currie, Janet & Madrian, Brigitte C., 1999. "Health, health insurance and the labor market," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 50, pages 3309-3416 Elsevier.
  13. Parsons, Donald O, 1980. "Racial Trends in Male Labor Force Participation," American Economic Review, American Economic Association, vol. 70(5), pages 911-20, December.
  14. Börsch-Supan, Axel & Schnabel, Reinhold, 1997. "Social security and retirement in germany," Sonderforschungsbereich 504 Publications 97-20, Sonderforschungsbereich 504, Universität Mannheim;Sonderforschungsbereich 504, University of Mannheim.
  15. Haveman, Robert H & Wolfe, Barbara L, 1984. "The Decline in Male Labor Force Participation: Comment," Journal of Political Economy, University of Chicago Press, vol. 92(3), pages 532-41, June.
  16. Dlugosz, Stephan & Stephan, Gesine & Wilke, Ralf A., 2009. "Fixing the leak: unemployment incidence before and after the 2006 reform of unemployment benefits in Germany," ZEW Discussion Papers 09-079, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  17. John Bound, 1989. "The Health and Earnings of Rejected Disability Insurance Applicants," NBER Working Papers 2816, National Bureau of Economic Research, Inc.
  18. Parsons, Donald O, 1982. "The Male Labour Force Participation Decision: Health, Reported Health, and Economic Incentives," Economica, London School of Economics and Political Science, vol. 49(193), pages 81-91, February.
  19. Brent Kreider, 1999. "Latent Work Disability and Reporting Bias," Journal of Human Resources, University of Wisconsin Press, vol. 34(4), pages 734-769.
  20. Andrew A. Samwick, 1998. "New Evidence on Pensions, Social Security, and the Timing of Retirement," NBER Working Papers 6534, National Bureau of Economic Research, Inc.
  21. Annemiek Vuren & Daniel Vuuren, 2007. "Financial Incentives in Disability Insurance in the Netherlands," De Economist, Springer, vol. 155(1), pages 73-98, March.
  22. Chen, Susan & van der Klaauw, Wilbert, 2008. "The work disincentive effects of the disability insurance program in the 1990s," Journal of Econometrics, Elsevier, vol. 142(2), pages 757-784, February.
  23. Courtney Coile & Jonathan Gruber, 2000. "Social Security Incentives for Retirement," NBER Working Papers 7651, National Bureau of Economic Research, Inc.
  24. Haveman, Robert & Wolfe, Barbara, 2000. "The economics of disability and disability policy," Handbook of Health Economics, in: A. J. Culyer & J. P. Newhouse (ed.), Handbook of Health Economics, edition 1, volume 1, chapter 18, pages 995-1051 Elsevier.
  25. John Bound, 1991. "Self-Reported Versus Objective Measures of Health in Retirement Models," Journal of Human Resources, University of Wisconsin Press, vol. 26(1), pages 106-138.
  26. Fedor Iskhakov, 2010. "Structural dynamic model of retirement with latent health indicator," Econometrics Journal, Royal Economic Society, vol. 13(3), pages S126-S161, October.
  27. Richard V. Burkhauser & J. S. Butler & Gulcin Gumus, 2004. "Dynamic programming model estimates of Social Security Disability Insurance application timing," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 19(6), pages 671-685.
  28. Kathryn H. Anderson & Richard V. Burkhauser, 1985. "The Retirement-Health Nexus: A New Measure of an Old Puzzle," Journal of Human Resources, University of Wisconsin Press, vol. 20(3), pages 315-330.
  29. Axel H. Boersch-Supan, 2001. "Incentive Effects of Social Security under an Uncertain Disability Option," NBER Chapters, in: Themes in the Economics of Aging, pages 281-310 National Bureau of Economic Research, Inc.
  30. David H. Autor & Mark G. Duggan, 2003. "The Rise In The Disability Rolls And The Decline In Unemployment," The Quarterly Journal of Economics, MIT Press, vol. 118(1), pages 157-205, February.
  31. Peter Diamond & Jonathan Gruber, 1999. "Social Security and Retirement in the United States," NBER Chapters, in: Social Security and Retirement around the World, pages 437-473 National Bureau of Economic Research, Inc.
  32. Heckman, James & Singer, Burton, 1984. "A Method for Minimizing the Impact of Distributional Assumptions in Econometric Models for Duration Data," Econometrica, Econometric Society, vol. 52(2), pages 271-320, March.
  33. Arjan Heyma, 2004. "A structural dynamic analysis of retirement behaviour in the Netherlands," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 19(6), pages 739-759.
  34. Tito Boeri & Axel Boersch-Supan & Guido Tabellini, 2002. "Pension Reforms and the Opinions of European Citizens," American Economic Review, American Economic Association, vol. 92(2), pages 396-401, May.
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